When energy dispels curse: Linking natural resources, energy and inclusive growth in Africa

Abstract

The aim of this paper is twofold. First, we assess the impact of natural resource dependence on inclusive growth in Africa and the channels through which this impact is transmitted; and second, we investigate the moderating role of energy in the relationship between natural resources and inclusive growth. Using data from 48 African countries over the period 1995–2020, we then mobilized several recent methods to effectively address the endogeneity issue, including Driscoll-Kraay, the Generalized Method of Moments in System (GMM-S) and the Two-stage Instrumental Variables (2SIV) approach. Several results emerge from the econometric analysis. First, natural resource dependence significantly reduces inclusive growth in Africa. Second, trade openness, human capital, and institutional quality mediate this effect by 46%, 65%, and 18%, respectively. Third, energy use moderates the relationship between natural resources and inclusive growth in Africa. Specifically, access to electricity and clean cooking energy improves the region's inclusive growth, while renewable energy and energy intensity worsen it. Fourth, the control variables significantly affect inclusive growth in line with the literature. First, we suggest large government investments in renewable energy infrastructure to reduce dependence on non-renewable resources, diversify the economy, and promote inclusive, sustainable economic growth in the long run. Second, public policies targeting workers, firms, and communities are needed to ensure an equitable transition to renewable energy to improve energy efficiency on the continent.