Natural resource dependence and institutional quality: Evidence from Sub-Saharan Africa
Based on:
Journal Article (2022)
This paper assessed whether natural resource-dependent countries have strong or weak institutional structures.
Brief by:
Research collaborators:
Although Africa is a continent that is rich in natural resources, it has performed poorly in terms of economic growth and development. Governments in natural resource-abundant countries have more incentives to loosen the institutional structures that govern natural resources exploitation to aid the overexploitation of resource rents and use them for personal interests instead of the development of the country, in line with the rent-seeking theory.
Key findings
Countries with a higher natural resource dependence have poor governance systems in terms of all the six measures of institutional quality.
Countries that are highly dependent on natural resources are politically instable, have poor rule of law and governance effectiveness, have a higher level of corruption and lower regulatory quality and accountability.
We argue that the negative relationship between natural resource dependence and institutional quality is caused by the desire of governments in natural resource-dependent countries to seek resource rents in order to win subsequent elections and discourage the diversification of the economy which may enhance the power of investors.
We also argue that governments of such countries tend to offer incentives to the citizens, to limit their desire to demand for increased accountability, for instance, by lowering taxes, offering public jobs, public goods, and transfer payments for political support during election periods.
In addition, other variables such as employment, education, and FDI improves institutional quality.
Proposed action
The first step consists of accepting that the institutional systems in such countries are weak, making it easy for anyone to take advantage of their resources
Overexploitation of natural resources happens because some of the current laws give the opportunity for politicians to use natural resource revenues for their personal interests
The mindset of political leaders must also be changed
Other policies must also be put in place to make sure that economies are not dependent on natural resources
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Acknowledgements
Special thanks to Smaranda Bob for preparation assistance
We would like to extend a special thank you to Smaranda Bob, for their invaluable contribution in assisting the preparation of this research summary.
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Natural resource dependence and institutional quality: Evidence from Sub-Saharan Africa
Cite this brief: Asiamah, Oliver. 'Natural resource dependence and institutional quality: Evidence from Sub-Saharan Africa'. Acume. https://www.acume.org/r/natural-resource-dependence-and-institutional-quality-evidence-from-sub-saharan-africa/
Brief created by: Oliver Asiamah | Year brief made: 2023
Original research:
- S. K. A., Asiamah, O., & et al., ‘Natural resource dependence and institutional quality: Evidence from Sub-Saharan Africa’ 79 https://doi.org/10.25676/11124/14104. – https://doi.org/10.1016/j.resourpol.2022.102967
Research brief:
This paper assessed whether natural resource-dependent countries have strong or weak institutional structures.
Although Africa is a continent that is rich in natural resources, it has performed poorly in terms of economic growth and development. Governments in natural resource-abundant countries have more incentives to loosen the institutional structures that govern natural resources exploitation to aid the overexploitation of resource rents and use them for personal interests instead of the development of the country, in line with the rent-seeking theory.
Findings:
Countries with a higher natural resource dependence have poor governance systems in terms of all the six measures of institutional quality.
Countries that are highly dependent on natural resources are politically instable, have poor rule of law and governance effectiveness, have a higher level of corruption and lower regulatory quality and accountability.
We argue that the negative relationship between natural resource dependence and institutional quality is caused by the desire of governments in natural resource-dependent countries to seek resource rents in order to win subsequent elections and discourage the diversification of the economy which may enhance the power of investors.
We also argue that governments of such countries tend to offer incentives to the citizens, to limit their desire to demand for increased accountability, for instance, by lowering taxes, offering public jobs, public goods, and transfer payments for political support during election periods.
In addition, other variables such as employment, education, and FDI improves institutional quality.
Advice:
The first step consists of accepting that the institutional systems in such countries are weak, making it easy for anyone to take advantage of their resources
Overexploitation of natural resources happens because some of the current laws give the opportunity for politicians to use natural resource revenues for their personal interests
- So the starting point is to revise these laws and build strong institutions to make sure these laws are interpreted and implemented successfully.
The mindset of political leaders must also be changed
- They have to understand that natural resources have to be used for the development of the country. Only then can we successfully implement better policies.
Other policies must also be put in place to make sure that economies are not dependent on natural resources
- Encouraging the diversification of the economy will ease the growth of other sectors as well with a positive impact on the growth and development of the overall economy .