The Impact of Resources on Economic Growth through Macroeconomic Variables

Increases in resources rents are often accompanied by a decline in economic growth. This has happened in countries in Asia, Africa and Latin America, and is often referred to in the specialized literature as the “Paradox of Plenty” or the “Resource Curse”.

Our research has chosen a group of five macro-economic and institutional variables, which are often identified in economic literature as influential on growth, with the intent of analyzing the impact of resources rents on them, and thus on economic growth.

We used balanced panel data for 114 countries, covering the period 2002-2021, and applied traditional panel data models of fixed effects and random effects, considering avoiding problems of heteroscedasticity, collinearity, endogeneity and robustness. The countries were then divided into two groups, higher income counties and lower income countries. The results suggest that resources rents negatively affect the average value of the institutional indices, particularly in lower income countries, and therefore have a negative impact on growth. As for the remaining four economic variables, the impact of natural resources rents was positive on two of them, namely saving (investment) and foreign direct investment, indicating positive impact on growth, and showed negative impact on both unemployment and human capital (education), indicating positive and negative impact on growth respectively. The research concludes that to avoid the resource curse and increase economic growth policy makers, especially in lower income countries, where natural resources rents are high, should concentrate on protecting and enhancing the institutions and the educational sectors.