The resource-based Kuznets curve hypothesis: An empirical exploration

Abstract

Countries face the risk of natural resource curse because of making their economic growth excessively dependent on natural resources. Although excessive resource dependence causes such a risk, it is inevitable that resource-rich countries will need resource rent up to a certain level of economic maturity. On the other hand, transferring the wealth achieved after this maturity level to productive investment areas also reduces the resource dependency levels of countries. In this context, countries that capture the possible inverted U-shaped relationship between economic growth and resource dependence can escape the curse. Based on this, the aim of this research is to determine the validity of the Kuznets type relationship between resource dependence and economic growth for the first time in the literature. Nine nations that rely heavily on natural resources are used as a sample for this. The countries with a share of total resource rent in national revenue greater than 25% are taken into consideration throughout the selection process for these countries. Using novel panel data methodologies, the effects of capital accumulation, public spending, foreign direct investment, and economic growth on the dependence on natural resources is examined from 1993 to 2021. The results reveal that capital accumulation reduces resource dependency while foreign investments and government size increases it. In addition, the Resource-Based Kuznets curve concept is supported by empirical data demonstrating an inverted-U-shaped relationship between economic growth and resource dependence for these nations. The thresholds derived from the parameters show that Saudi Arabia and Kazakhstan are well beyond this cutoff. The Democratic Republic of the Congo and the Republic of the Congo, on the other hand, remain a long way from this threshold. Furthermore, Iraq, Mongolia, Iran, and Azerbaijan have national incomes that are close at the threshold.