Natural resources, quality of institutions and entrepreneurship activity

It is well-established that entrepreneurs are agents of change if natural resources are exploited and used judiciously. While entrepreneurial activities may foster the accumulation of resource rents, the quality of institutions matters in this matrix of relationships. Therefore, research on natural resource availability and entrepreneurship has been consolidated over the last decade. However, the evidence on the role of institutional quality in facilitating entrepreneurship across countries with different resource endowments remains limited. Thus, we investigate the natural resource-institutions-entrepreneurship nexus using The World Bank data portals—the Worldwide Governance Indicators, World Development Indicators, Doing Business Database and the Global Entrepreneurship Monitor data from 2006 to 2015. We use a mix of estimation strategies, accounting for potential endogeneity and managing autocorrelation across panels. To a large extent, we find resource rent to increase the quality and growth of business formation in sub-Saharan Africa. More importantly, we observe a significant and positive synergy effect of the quality of institutions in the relationship between natural resource rent and business formation. Our contribution to resource policy is twofold. First, we examine the effect of a rise in natural resource rent on entrepreneurial activity using the context of sub-Saharan Africa– a region rich in natural resources. Second, we demonstrate that facilitating institutional quality in a country will also shape how the availability of natural resources affects entrepreneurial activity. Our findings provide policy and managerial implications.