External debt and natural resource depletion: Insights from developing countries

While an association between external debt (EXT) and natural resource depletion (NRD) has been of academic and policy interest, the specific mechanisms underlying this remain empirically underexplored, especially in developing countries. This study addresses that gap by analysing panel data from 53 developing countries from 1998 to 2021 using various robust econometric approaches. To facilitate comprehensive understanding, we examine governance stringency (GOV) as a mediating channel and test heterogeneity between Highly Indebted Poor Countries (HIPC) initiative participants and non-HIPC ones. Panel corrected standard errors (PCSE) approach is adopted for the direct effect estimations, while the instrumental variable generalized method of moments (IV-GMM) and the variable substitution technique are used for robustness checks. Three findings emerge: first, higher EXT is associated with greater NRD across various specifications. Second, while stronger GOV reduces NRD, the overall mediation pattern is heterogeneous, with EXT linked to stronger GOV among HIPC countries and weaker outcomes in non-HIPC ones. Third, industrialisation and urbanisation intensify NRD, whereas broad money supply reduces it. We recommended that governments consider implementing sustainable debt restructuring strategies that ease repayment pressures as well as governance reforms that enforce resource stewardship and minimises over-exploitation.