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Natural resource endowment and output growth: How crucial is deficit financing in managing resource-rich African economies?

Author

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  • Peter Ekundayo Mesagan

    (Pan Atlantic University)

  • Akanni Ismaila Yusuf

    (University of Lagos)

  • Azubuike Isaac Ogbuji

    (University of Lagos)

Abstract

The recent crash in the international crude oil price and the fluctuations in the price of gold force oil-net-exporting and gold-producing African countries into recession, thereby necessitating the government to budget for the deficit to cater for the revenue inadequacy. To this end, this study examines the role of deficit finance in the economy of natural resource-abundant nations in Africa to provide an alternative explanation to the resource curse and Dutch disease syndromes. We use the fully modified ordinary least squares as the technique of estimation, and results show that natural resources positively impact output growth in Angola, Egypt, Nigeria, and Tanzania, while they negatively affect output growth in South Africa. Also, in Egypt, Tanzania, and South Africa, Dutch disease is not a problem as the exchange rate negatively affects output growth, while it is a problem in Angola and Nigeria. Lastly, deficit financing positively enhances output growth only in Angola and South Africa, while it is significant only in both Tanzania and Angola. We, therefore, recommend that South Africa should utilise its positive fiscal stance to augment the adverse effect of its natural resources on output growth, while Egypt, Nigeria, and Tanzania should source more funds from external sources to finance deficits and improve the efficiency of fiscal deficits on output growth.

Suggested Citation

  • Peter Ekundayo Mesagan & Akanni Ismaila Yusuf & Azubuike Isaac Ogbuji, 2019. "Natural resource endowment and output growth: How crucial is deficit financing in managing resource-rich African economies?," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(2), pages 353-369, December.
    • Handle: RePEc:spr:jsecdv:v:21:y:2019:i:2:d:10.1007_s40847-019-00083-z
    DOI: 10.1007/s40847-019-00083-z
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    Cited by:

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    2. Nwani, Chinazaekpere & Adams, Samuel, 2021. "Environmental cost of natural resource rents based on production and consumption inventories of carbon emissions: Assessing the role of institutional quality," Resources Policy, Elsevier, vol. 74(C).
    3. Agatha Nkem Amadi & Isaac Azubuike Ogbuji & Hope Agbonrofo, 2020. "The Maturity and Repayment Structure of Sovereign Debt: Implications for Development Agenda in Nigeria," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(1), pages 115-120, March.
    4. Ekundayo P. Mesagan & Isaac A. Ogbuji & Yasiru O. Alimi & Anthonia T. Odeleye, 2019. "Growth Effects of Financial Market Instruments: The Ghanaian Experience," Working Papers 19/095, European Xtramile Centre of African Studies (EXCAS).
    5. Eregha, Perekunah B. & Mesagan, Ekundayo P., 2020. "Oil resources, deficit financing and per capita GDP growth in selected oil-rich African nations: A dynamic heterogeneous panel approach," Resources Policy, Elsevier, vol. 66(C).
    6. Mesagan, Ekundayo & Adenuga , Juliet, 2020. "Effects of Oil Resource Endowment, Natural Gas and Agriculture Output: Policy Options for Inclusive Growth," BizEcons Quarterly, Strides Educational Foundation, vol. 8, pages 15-34.
    7. Yusuf, Ismaila Akanni & Mesagan, Ekundayo Peter & Amadi, Agatha Nkem, 2020. "Effect of financial deepening on stock market returns: The case of military and democratic post-SAP regimes in Nigeria," BizEcons Quarterly, Strides Educational Foundation, vol. 6, pages 3-21.
    8. Mesagan, Ekundayo Peter & Vo, Xuan Vinh, 2023. "Does natural resource rent and consumption interplay worsen Africa's pollution? Heterogeneous panel approach with cross-sectional dependence," Resources Policy, Elsevier, vol. 82(C).
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    10. Tabash, Mosab I. & Mesagan, Ekundayo Peter & Farooq, Umar, 2022. "Dynamic linkage between natural resources, economic complexity, and economic growth: Empirical evidence from Africa," Resources Policy, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Natural resources; Fiscal deficit; Output growth; Africa;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N57 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Africa; Oceania
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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