Natural resource dependence and institutional quality: Evidence from Sub-Saharan Africa

Recent development in the resource curse literature highlights that one of the channels through which the curse may occur is the tendency of resource wealth to weaken institutional quality. Using an intermediary framework, this study examines whether natural resource dependence weakens institutional quality in sub-Saharan Africa (SSA) using the system dynamic general methods of moments. The results indicate that natural resource dependence is negatively associated with institutional quality. From this perspective, the study concludes that natural resource dependence weakens institutional quality in SSA which provides empirical support for the rent-seeking theory. In addition, employment, education, and FDI exhibit positive significant relationships with institutional quality. In light of this, the study recommends that policy development in SSA countries should encourage modernisation and diversification of their economies from natural resource dependence to enhance the growth of other sectors. Furthermore, policies on natural resources should incorporate sustainable exploitation to limit rent seeking and ensure the independence and quality of institutions to turn the resource curse into a blessing.

Automated summary

The study shows a negative association between natural resource dependence and institutional quality, supporting the rent-seeking theory. Additionally, employment, education, and FDI have significant positive relationships with institutional quality. To avoid the resource curse, policy development in SSA countries should focus on encouraging economic modernization and diversification, as well as incorporating sustainable natural resource exploitation policies.