Natural Resources, Institutional Quality and Sustainable Development: Simultaneous Analysis of the Main Transmission Channels
Baghdedi S and Kamel EW
Published on: 2026-01-04
Abstract
The sustainable development of resource-rich countries reveals a counter-intuitive phenomenon: their natural wealth is a blessing for some and often turns into a curse for others. The objective of this paper is to show that the curse of natural resources has been elucidated through political economy; resource revenues have devastating effects on political and economic modes of governance. Via rent-seeking behaviors by political elites, natural rent has often generated extreme cases of institutional collapse.
The study includes 70 countries and data that characterize them, over a period from 1980 to 2021, and via a simultaneous equation model, we seek to study the trilateral relationship and the interaction links between natural resources, institutional quality and sustainable development.
The empirical results show that most of the countries with natural wealth are classified as countries with low human development levels, with a HDI between 0.207 and 0.314, these countries are finally victims of the curse of natural resources, a curse particularly due to a worsening of the institutions in force. However, the developed countries, despite the precariousness of their natural resources, they have exploited this endowment in the strengthening of their economies, while recording good indicators of human and social development, this has been achieved through a great transparency and better management of natural resources, hence a good institutional quality that acts positively on the rents generated by resources.
Keywords
Natural resources; Institutions; Sustainable developmentIntroduction
The relationship between natural resources and economic development in recent decades has certainly posed a conceptual puzzle. After all, natural resources should normally be an engine of growth and a stimulator of purchasing power, and therefore a blessing, most African countries are rich in natural resources, as well as the aid allocated to the African continent has increased by 64% for the period from 2000 to 2013, this aid reached a sum of 55 billion dollars in 2013, indeed the level of growth of these said countries is so low since 1960.
Not enough studies show a negative relationship between natural resource abundance and a country's economic growth, so a resource-rich country generally has lower growth than a resource-poor country. This result is commonly referred to as the resource curse, [1].
Sala-i-martin and Subramanian [2] suggest that the link between natural resources and slower growth is associated with institutions. Natural resources would not be the only source of revenue that could negatively influence growth, international aid could also contribute to the resource curse [3]. However, according to Burnside and Dollar [4], development assistance could contribute to economic growth in a context of good economic institutions and policies.
The question of the relationship between natural resource abundance and well-being is quite relevant, as illustrated by examples from our economic reality. Thus, Botswana, Australia and Norway are resource-rich countries and consequently have high economic growth, while Nigeria, Sierra Leone, Democratic Republic of Congo and others are resource-rich countries with low levels of human development, on the other hand, Asian tigers; Korea, Taiwan, Hong Kong and Singapore; are resource-poor but have high economic development.
This disparity in economic reality has led not enough researchers in the field to question the controversial relationship between natural resources and economic growth.
The natural resource curse hypothesis refers to the situation of the inverse relationship between natural resources and economic growth, where a country rich in natural resources has a ridiculous level of economic development and a restricted degree of poverty compared to a country deprived of this wealth [5].
Empirically, we refer to a structural model with simultaneous equations that highlights three endogenous variables, namely natural resources, institutional quality and sustainable development. This model shows a double impact of natural resources on sustainable development, a direct impact on economic development and an indirect impact via institutional quality.
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