Converting a resource curse into a resource blessing: The function of institutional quality with different dimensions

Abstract

There are a numbser of reasons suggesting that improving institutional quality is the most vital role for nations that are experiencing or are expected to face a natural resource curse to overcome these challenges. Based on this debate, this study seeks to examine the relative impacts of different dimensions of such qualities – institutional quality (that is, index of rule of law, control of corruption, regulatory quality, political instability, voice accountability, and government effectiveness) – in MENA countries using a cross-sectional and time series data from period of 1996–2019. In the light of this, the main variable considered is effects of natural resource rents and other factors, such as human factor and financial developments on real GDP per capita. To achieve the desired result, panel model techniques was employed to estimate the results, which revealed that natural resource rents and human capital have positive and significant relationship with real GDP per capita while financial development have negative impacts, hence diminishes the economic growth of the country. Also, voice accountability and government effectiveness have negative effects on the real GDP, while the other institutional quality, except regulatory quality, have significant contribution in increasing the real GDP. The interacting effects of natural resource and voice accountability foster the economic development, and it also have impact in increasing the size of natural resources, and human capital on the economic development of MENA while at the same time vanishes the initial negative effects of financial development of the economic growth. Moreover, interaction of natural resource rent on political instability, government effectiveness, rule of law, and control of corruption have all significantly contributed to increase the economic growth of MENA while regulatory law is of no significant. Based on this, ideal policy directions were highlighted.