Resource-abundant Countries Research Articles

Natural resources and economic growth: comparing nineteenth century Scandinavia and twentieth century Southeast Asia

ABSTRACT This paper aims to bridge part of the gap that exists between the resource curse literature and economic historical research on natural resources by analysing four resource-abundant countries. The study proposes that at the sectoral level, the determinants of growth in resource-based industries were mostly similar in the late 19th and late 20th centuries. However, we also argue that the relative contribution of natural resources to economic growth might have been declining during the late twentieth century. The evidence comes from an analysis of the forestry sector in Finland and Sweden between 1860 and 1910 and the palm oil industry in Indonesia and Malaysia between 1970 and 2016.

The relationship between trade openness and government resource revenue in resource-dependent countries

Natural resource-abundant countries are generally dependent on resource revenue for their government budgets. Given the volatile prices of natural resources, such high dependence has led to the need for government revenue diversification, that is, shifting from resource sources to non-resource sources. Meanwhile, recent globalization helps promote economic growth, but it makes resource-dependent countries more vulnerable to fluctuations in resource prices, motivating them to diversify revenue sources for sound fiscal policies. Thus, examining the role of international trade in government revenue diversification is an important issue for resource-dependent countries, which has not been examined empirically in the literature. To fill the research gap, this study discusses this issue in resource-abundant countries. An autoregressive distributed lag model is used with panel data of 13 countries from 1996 to 2014. Estimations reveal a negative long-run association between government resource revenue and trade openness. Resource-abundant countries that promote trade liberalization tend to break down the resource-dependent structure of government revenues. Our analysis also shows a negative long-run association between government resource and non-resource revenues, which suggests the substitutability between the two government revenue sources. The promotion of government non-resource revenues would help governments receive the benefits of stable government revenues.

Nexus between total natural resource rents and public debt in resource-rich countries:A panel data analysis

The study investigates the long-run and causal correlation between total natural resource rents and economic development in a public debt function. We integrate trade openness, inflation, population growth, and unemployment in the model as additional regressors. Empirical evidence is premised on an annual balanced panel data between 1991 and 2017 for 17 selected resource-rich countries. Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) econometric method is employed as the most suitable estimation model that deals with various econometric issues, including heterogeneity between the selected countries. The Johansen Fisher Panel Cointegration Test and Kao Test reveal a cointegration between the variables. The PMG-ARDL results suggest a significant positive relationship between countries’ resource earnings and public debt in the long-run and a negative link in the short-run. Implying that overdependence on total natural resource rents affects public debt sustainability of the panel countries if effective fiscal and economic management policies are disregarded. The panel Vector Error Correction Model (VECM) result shows a causal relationship between resource abundance and government debt. Finally, bidirectional causal relationships are found to exist between natural resource rents and public debt accumulation. To avoid debt-overhang incidence, governments of resource-abundant countries should engage in responsible borrowing, invest in sectors that will stimulate development, and implement anti-corruption policies to seal revenue leakages.

Does abundant natural resources amplify the negative impact of income inequality on economic growth?

Prevailing research suggest that inequality has a negative impact on economic growth. We hypothesize that countries that have abundant natural resources stand to suffer more from income inequality. Using the system generalized method of moments (GMM) dynamic panel estimation method and data set for the period 1988–2012, we compare the relationship between inequality and economic growth in resource and non-resource abundant countries. Our results confirm that the negative impact of income inequality on economic growth is amplified for countries that are endowed with abundant natural resources. Therefore, we propose that reducing income inequality could mitigate the detrimental impact of resource abundance on economic growth.

Factors affecting gold production in Zimbabwe (1980–2018)

The debate on the ‘resource curse’ or ‘the paradox of plenty’ has been raging for decades, albeit with no consensus. This is due to the diversity of findings from empirical literature supporting either side of the debate. The resource curse itself has been compartmentalised into several variants of the model, depending on the perceived causes and channels through which its effects are transmitted into the economy. Zimbabwe has been classified as a natural resource-abundant country by the World Bank. This paper broadly aims to evaluate the determinants of gold production in Zimbabwe during the period 1980 to 2018. Zimbabwe has an estimated 13 million tons of gold in situ. However, the country has not been able to fully exploit this resource – production has been intermittent and cyclical. Econometric modelling of the determinants of gold production shows that international gold price appears to be negatively related to gold production in Zimbabwe. This counter-intuitive result is explained by the greater impact of domestic economic conditions. Foreign currency retention, political stability, and gross capital formation are all positively related to gold production. It is recommended that Zimbabwe considers liberalizing the gold trading regime and institutes greater political stability and strengthen its institutions to stimulate gold production.

Assessment of CES Function Parameters in Oil-Rich CIS Countries

The article analyses balance between the capital and labor market in the CIS countries rich in hydrocarbon resources – Azerbaijan, Kazakhstan and Russia. For this purpose, the impact of capital (fixed assets) and labor (employed population) on the production volume (on GDP) was estimated based on the relevant statistical data from these countries using production function analysis. The parameters of CES production function were determined in the Mathcad system by the nonlinear least-squares method. The subject of the research has enhanced relevance due to the lack of extensive research of the problem posed in the oil and gas-rich countries of the CIS, and the research evaluates the balance between capital and labor markets for the first time in resource-abundant countries. From the results, it can be seen that for each of these three countries the distribution coefficient for capital is significantly higher than that for the labor factor. This means that there is an excess of capital that cannot be started. This is typical for the countries rich in natural resources. The main reason for this process is the complex structure of increasing capital with oil revenues and low level of specialization of the existing labor force to launch this capital. Moreover, according to the results obtained from the CES production function, the substitute elasticity coefficient in oil-rich countries of the CIS is less than one. The study summarizes the current problem as an imbalance between the capital (fixed assets created using modern technology) and the labor market (labor to leverage key assets using potential opportunities). Based on the analysis, the results obtained from modeling is formulated and scientifically grounded recommendations have been provided for the improvement of education and its quality in these three countries, especially in Russia and Azerbaijan.

Disaggregated analysis of the curse of natural resources in most natural resource-abundant countries

A vast body of literature examining the natural resource curse hypothesis (NCRH), the studies, by summing all types of natural resources, uses a single measure for the natural resource. To fill this gap, the study aims at testing the NRCH hypothesis by using the ARDL method and use the data distinguishing five different types of natural resources (coal, forests, minerals, natural gas, and oil) and covering the period from 1990 to 2017 for ten countries with different level of economic development, being measured by Human Development Index. The study finds mixed results. Firstly, the study finds very little evidence favoring adverse growth effects across each type of commodity. The results show no positive or negative impacts of natural resources on economic growth for developed economies (countries with high HDI scores). For countries with moderate and low HDI scores, we found mixed results. In particular, we find some evidence supporting NRCH for point-source resources for these two group countries (moderate and poor).

Impact of institutions and ICT services in avoiding resource curse: lessons from the successful economies

Countries endowed with abundant natural resource have not shown similar economic growth. Thus, the study investigates why some resource-abundant countries are not successful while others are. By using the fixed effect panel data model, the study examines the role of institutions and ICT services in overcoming the resource curse problem. The study employed panel data from World Bank database for the period of 25 years (1995–2019). The result shows that natural resource abundance and institutional performance indicators have significant negative effect on economic growth in the case of some group of economies, confirming presence of resource curse and institutional curse. However, these economies have the potential to escape the resource curse provided that they able to build human capital, adopt ICT services and build quality of institutions. Therefore, policies that firmly promote building human capital, quality institutions, adoption and usage of ICT services in resource curse economies could help them to escape the curse.

Evonik successfully completes acquisition of Porocel.

Prevailing research suggest that inequality has a negative impact on economic growth. We hypothesize that countries that have abundant natural resources stand to suffer more from income inequality. Using the system generalized method of moments (GMM) dynamic panel estimation method and data set for the period 1988–2012, we compare the relationship between inequality and economic growth in resource and non-resource abundant countries. Our results confirm that the negative impact of income inequality on economic growth is amplified for countries that are endowed with abundant natural resources. Therefore, we propose that reducing income inequality could mitigate the detrimental impact of resource abundance on economic growth.

The Effect of Copper Price Shock on the Relationship between Government Revenue and Expenditure: Testing the Fiscal Stability Law of Mongolia

This study empirically investigates the relationship between government revenue, government expenditure and the copper price in Mongolia, a resource abundant country. Using quarterly data of government revenue, expenditure and international copper price from 2000 to 2015, the results of auto regression (VAR) show that there is a strong causality from revenue to expenditure, while increase in expenditure, most likely, is not accompanied by rises in revenue. This result is consistent with the revenue-spent hypothesis. Moreover, the result also indicates that copper price shock increases revenue, but decreases expenditure. This finding supports the assumption that the Mongolian government follows its Fiscal Stability Law, a strategy that intends to maintain the stability and sustainability of the government budget.

What Drives Successful Economic Diversification in Resource-Rich Countries?

AbstractThe “resource curse” is often understood to imply poor growth in the non-resource sectors of the economy, but research into the diversification performance of resource-rich countries is limited. This paper surveys recent evidence and identifies empirical patterns in the economic diversification of resource-rich countries. Diversification is measured using the growth of per capita non-resource (manufacturing and services) sectors in domestic and export markets, which has a cleaner interpretation than competing measures. This measure is used to evaluate the long-term diversification of countries that started off as resource-dependent, and to rank countries according to their performance. We then identify policy-relevant correlates of diversification at the national level, including the acquisition of human capital, public and intellectual capital, and firm dynamism. More resource-dependent countries appear to perform worse on measures of human capital and intellectual capital, but more resource-abundant countries perform better on public capital and human capital accumulation. We examine the mechanisms behind diversification performance through in-depth case studies of Oman, Laos, and Indonesia, and conclude by identifying policy lessons and future research directions.

The AEC and a Technology-Driven Industrial Catch-Up: Three ASEAN Country Cases

ABSTRACT There is a growing consensus that effective Science, Technology, and Innovation (STI) policies, aimed at supporting long-term national structural transformation, are a crucial element in helping latecomer countries escape from the middle-income trap. Citing cases of Northeast Asian catch-up and Latin American middle-income traps, scholars emphasize that the key to catch-up is a triple-helix coordination that is used to transform foreign technology into indigenous technological capabilities. Thus, ideally, the expansion of the global production network, as promoted by the ASEAN Economic Community (AEC), provides opportunities for middle-income ASEAN countries to implement this technology-driven industrial catch-up strategy. This paper investigates three middle-income ASEAN countries (Malaysia, Thailand, and Indonesia) to argue that the AEC, as an open market-led economic regionalism scheme, does not have the ability to create a strong sense of urgency on the part of national governments to alter their national STI policy directions. As resource-abundant countries, Malaysia, Thailand, and Indonesia have yet to find any urgent need to prioritize the upgrading of indigenous manufacturing over natural resource-based technological developments. For these three countries, the AEC amplifies the need to compete against other ASEAN member countries instead pushing them to pursue industrial catch-up collectively. Keywords: economic regionalism, STI, industrial catch-up, ASEAN DOI : https://doi.org/10.33005/jgp.v7i02.1832

An Investigation of the Reasons for the Natural Resource Curse: Selected Country Cases

Ever since its growing importance, the natural resource abundance and economic growth relationship have been a hot field of study for researchers. In the existing literature, many studies pointing to the negative impact of natural resource endowment on economic growth performance. While some “blessed” natural resource-abundant countries enjoy their natural resource revenues and have a remarkable economic growth performance, many others are “cursed” despite having great natural resource wealth. Natural resource windfall may induce Dutch Disease with excessive rent-seeking, corruption, poor institutionalism, and democracy in resource-rich developing countries. The aim of this study is to investigate the causes of the natural resource curse in developing natural resource-rich countries. In this research, the sample natural resource-rich countries were analyzed between 1980 and 2018 to validate the existence of the natural resource curse in these countries. In the first part, the conceptual framework and reasons for the natural resource curse were explained in detail. In the second part, successful natural resource-rich country cases, as well as selected resource-rich developing countries, were compared according to their economic growth performances, their natural resource revenues, and degree of dependence of their economies on the natural resource revenues. In the last part, some policy suggestions were put forward to avoid a natural resource curse in developing countries.

What Drives Successful Economic Diversification in Resource-Rich Countries?

The ‘resource curse’ is often understood to imply poor growth in the non-resource sectors of the economy, but research into the diversification performance of resource-rich countries is limited. This paper surveys recent evidence and identifies empirical patterns in the economic diversification of resource-rich countries. Diversification is measured using the growth of per capita non-resource (manufacturing and services) sectors in domestic and export markets, which has a cleaner interpretation than competing measures. This measure is used to evaluate the long-term diversification of countries that started off as resource-dependent, and to rank countries according to their performance. We then identify policy-relevant correlates of diversification at the national level, including the acquisition of human capital, public and intellectual capital, and firm dynamism. More resource-dependent countries appear to perform worse on measures of human capital and intellectual capital, but more resource-abundant countries perform better on public capital and human capital accumulation. We examine the mechanisms behind diversification performance through in-depth case studies of Oman, Laos and Indonesia, and conclude by identifying policy lessons and future research directions.

Determinants of China’s arms exports: a political economy perspective

This paper investigates the determinants of China’s arms transfers by focusing on the roles of political factors and energy resource acquisition. Using Stockholm International Peace Research Institute data on China’s arms exports during the period from 2001 to 2014, we find that China is likely to sell and transfer more arms to countries with less political freedom and more corrupt or more autocratic countries, implying that political considerations are hidden in arms transfers. The motivation for seeking energy resources is overall supported, suggesting that China’s arms transfers are also motived by securing their need for energy and natural resources. That arms trade is a joint decision of both sides implies that political considerations also exist for autocratic regimes or resource-abundant low-income countries to acquire weapons from China.

Improved resource governance through transparency: Evidence from Mongolia

Transparency and accountability initiatives have emerged as a potential solution to combat corruption and increase public benefits from the extractive sector in resource-abundant countries. The Extractive Industries Transparency Initiative (EITI) is one such initiative, through which 49 resource-rich countries have disclosed a cumulative 282 fiscal years of government revenues amounting to US$1.9 trillion since 2003. This paper explores the potential for promised benefits of increased disclosure to be realized, in the form of improved resource governance. Building on the social accountability literature, a framework is proposed and then applied to the Mongolian context to examine which stages of the framework work well, and which fail to perform. Two types of contracts are analyzed, water usage agreements and community benefit-sharing agreements. Although Mongolia is recognized as a leading performer by international EITI standards, the analysis concludes that the framework’s latter stages from disclosure to improved resource governance are incomplete. The policy implication is that greater attention to mobilization and citizen empowerment is needed to ensure that contract transparency can meaningfully contribute towards improved governance.

An empirical note on comparison between resource abundance and resource dependence in resource abundant countries

This study explores the relative effects of natural resource abundance and natural resource dependence on economic growth for the period of 1980–2015 in 35 natural resource abundant countries. For this purpose, the relationship between economic growth, natural resource rents per capita, natural resource rents share of gross domestic product, capital, trade openness and financial development is examined. In doing so, we utilized with second generation panel data methodologies to take into account the cross-sectional dependence among countries. Our results show the existence of cointegration between the variables. Moreover, natural resource abundance promotes economic growth but natural resource dependence prevents economic activity. This study provides guidelines to utilise natural resources as economic tool to maintain economic development for longer period of time.

Renewable Energy and Sustainable Development in a Resource-Abundant Country: Challenges of Wind Power Generation in Kazakhstan

In recent years, the environmental effects of energy production have increasingly entered into the foreground of the sustainable development agenda. Hydrocarbon-abundant countries are blamed to become the largest emitters of greenhouse gases, trace metals, and other pollutants due to extensive use of oil, gas, and coal in energy production. Combustion of fossil fuels for heat and power generation is reported to be among the major reasons for progressing climate change globally. The United Nations and other international actors have called on national governments to substantially increase the share of renewable energy, but the main point is how to incentivize the resource-rich countries to shift to greener technologies. For the example of Kazakhstan, whose energy sector is centered on coal, this paper discusses the challenges and prospects of wind power as both an environmentally friendly and efficient option to support a transition of a resource-rich country to a green economy and a sustainable energy future. Forty-two locations across the country have been assessed on the parameters of average annual wind speed, wind availability, and four types of potential for wind power production: gross, technical, economic, and emissions reduction. Some of the key findings are that at the height below 50 m above ground level, wind power production is economically viable in electricity-deficientt southern territories, particularly, in Djungar, Saryzhas, Zhuzimdyk, and Taraz. In western, central, and northern parts of Kazakhstan, at a height above 50 m, the most promising areas for wind power production are Caspian, Northwestern, Central, and Tarbagatay corridors. The paper identifies the areas with the highest emission reduction potential and elaborates the policies to encourage the selection of wind farm locations based on their “economic potential-environmental effect” ratio. The approach allows assessing the opportunities, which decentralized wind energy systems offer to transition away from a dependence on fossil fuels and to enable sustainable economic growth.

National or political cake? The political economy of intergovernmental transfers in Nigeria

Abstract Rule-based intergovernmental transfers are often presented as the panacea to avoid the manipulation of transfers for political motives. We question that assertion in the case of Nigeria, where these transfers are highly dependent on natural resources and likely to be subject to elite capture. In this article, we use oil windfalls as a source of exogenous variation in the political discretion an incumbent government can exert in rule-based transfers. Exploiting within-state variation between 2007 and 2015 in Nigeria, an increase in VAT transfers induced by higher oil windfalls is found to improve the electoral fortune of an incumbent government. Our results question the promotion of rule-based transfers as a one-fits-all institutional solution in resource-abundant countries with relatively weak institutions.

Natural resource rents and economic growth in the top resource-abundant countries: A PMG estimation

The relationship between natural resource rents and economic growth has witnessed a lively debate since last decades. It has been shown that many countries rich in natural resources have experienced a disappointing economic growth. Still the key challenges how turning resource rents into a driver rather than a detriment of development. This paper contributes to the existing literature by focusing on the causal linkages between total natural resource rents and economic growth in a sample of top resource-abundant countries over the period 1970–2013. The implementation of the Pooled Mean Group (PMG) estimator reveals interesting findings. The latter give support for the natural resource bless hypothesis in the long-run, while no such evidence is confirmed in the short-run. Findings suggest also that economic growth exerts a positive impact on resource rents. On the other hand, the causality analysis indicates that a feedback causal relationship exists between the two variables. The short-run country-specific analysis shows the heterogeneity of results across countries, which constitutes an argument towards the use of the PMG estimator when investigating the resource rents-economic growth nexus.