article · PSU Research Review
Overreliance on natural resource wealth can worsen dysfunctional economic outcomes in Nigeria when institutional frameworks remain weak. An econometric investigation spanning 1996 to 2019 assessed the relationship between natural resource rents, institutional quality, and economic growth using cointegration and causality techniques. The results establish that the combination of natural resource rents and poor governance exerts a negligible or even retarding impact on economic growth over both the short and long run. Furthermore, a unidirectional causal link runs from this combined interaction to national growth, demonstrating that economic trajectory is jointly influenced by resource revenues alongside institutional standards. Consequently, economic outcomes in resource-rich nations reflect governance mechanisms and ownership structures rather than resource windfalls alone, highlighting the critical role institutional quality plays in mediating development.
Understanding the dynamics between natural wealth and national performance is crucial for resource-dependent nations. Rather than viewing resource revenues as an automatic engine for prosperity, the evidence demonstrates that weak governance can stall economic progress. Strengthening institutions is therefore essential to prevent resource wealth from turning into an economic hindrance, guiding effective policy design and public administration.
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Purpose The paper assesses the role of natural resource rents in Nigeria's economy through the channel of institutional quality. Design/methodology/approach The analysis is done with the use of autoregressive-distributed lag (ARDL) bounds testing approach to cointegration, vector error correction model (VECM), Granger causality test and cointegrating regression over the period 1996–2019. Findings Findings support the notion that overreliance on natural resources could exacerbate the growing number of dysfunctional economic outcomes in the country. The study confirms that a mix of weak governance quality and natural resource rents could have a negligible effect on economic growth and possible retardation impact on the economy in the long run as well as in the short run. The evidence further reveals that there is unidirectional causality running from the interaction term to growth, suggesting that growth trajectory could be jointly determined by natural resource rents and the quality of institutions. Originality/value The divergent arguments associated with the mechanisms of resource curse in each of the resource-rich countries offer ample support for the contention that economic outcomes in resource-abundant states may not be a product of resource windfalls per se , but rather the quality of governance or ownership structure. Hence, the ultimate aim of the analysis is to further understanding on the link between resource rents and growth in Nigeria via governance channel.
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DOI: 10.1108/prr-09-2021-0052
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