Do Natural Resources Abundance and Institutional Quality Promote Economic Growth? A Study on The Resource Curse Hypothesis in Countries with Different Income Groups

This study examines the association between natural resource rents and economic development, drawing on a balanced panel of 111 countries over the period 1995 to 2020. Employing panel regression techniques, the analysis is conducted both globally and across stratified income groups: high-income, middle-income, and low-income economies. The model incorporates key drivers of economic performance, including institutional quality, physical capital, human capital, trade openness, and foreign direct investment. Empirical results indicate that, at the global level, natural resource rents exhibit a statistically significant and positive association with GDP per capita, thereby challenging the conventional resource curse narrative. However, disaggregated results reveal a nuanced pattern. While natural resources foster economic growth in high and middle-income countries, they exert a significant negative effect in low-income countries, offering robust evidence that the resource curse is context-specific. Institutional quality consistently demonstrates a strong and positive contribution to economic development across all specifications. These findings highlight the pivotal role of institutional quality in mediating the impact of natural resource on economic growth. The study contributes to the literature by providing novel insights into the conditional relationship between natural resources and development, and offers policy recommendations that are tailored to the institutional and economic realities of countries at different stages of income.