Disentangling the heterogeneous effect of natural resources on economic growth

Previous studies on the impact of natural resources on economic growth have produced mixed results, which could be partly explained by unobserved heterogeneity that has not been adequately accounted for. This paper aims to identify this heterogeneity in the resource-growth nexus and explore the potential factors driving it. Using a panel dataset of 97 countries from 1990 to 2019, we apply a grouped fixed-effects estimator to identify groups of countries with distinct time-varying growth patterns and differing economic responses to natural resource wealth. We then use an ordered probit model to examine the drivers of this heterogeneity, focusing on institutional factors and other transmission channels. Our findings show that economic and political institutions, social capital, and export diversification are key to explaining group membership, with some groups experiencing positive and others negative resource-growth effects. This underscores the need to account for unobserved heterogeneity and consider institutional quality as multidimensional.