Revealing the role of institutional quality and geopolitical risk in natural resources curse hypothesis

Abstract

This study investigates the resource curse hypothesis, focusing on the roles of institutional quality and geopolitical risk. Using panel data from 43 countries between 1990 and 2022, we employ robust econometric methods, including the Panel Corrected Standard Error (PCSE) estimator and quantile regression, to test three hypotheses: (1) the resource curse varies by resource type, (2) institutional quality and geopolitical risk act as mediating factors, and (3) the resource curse's impact differs by a country's economic development stage. Our findings reveal that oil, mineral, and forest rents negatively impact economic growth, with institutional quality partially mediating these effects. Conversely, natural gas rent supports the resource blessing hypothesis through the fully mediating effect of institutional quality, while coal rent boosts economic growth but reduces institutional quality. The resource curse behavior varies across economic development. These findings highlight the complex interactions between resource types, institutional quality, geopolitical risk, and economic growth, suggesting that policy improvements in institutional quality can transform resource curses into blessings. The study contributes to the literature by providing new insights into the pathways through which natural resources affect economic growth and offers valuable policy implications for resource-rich countries aiming for sustainable development.