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Assessment of Institutional Quality in Resource Rich Caspian Basin Countries

Author

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  • Jeyhun Mammadov
  • Assoc. Prof. Dr. Jeyhun Mammadov
  • Prof. Dr. Ingilab Ahmadov
  • PhD candidate, Kenan Aslanli

Abstract

Natural resource dependence is believed to have potential impact on institutional development, and there is growing consensus in the academic literature that institutional weakness is central to the explanation of the negative effects of resource booms. Generally, the quality of institutional framework and natural resource dependence interact mutually. Natural resources rents can damage institutions by removing incentives to conduct reforms and even to establish a well-functioning bureaucracy. Also, weak institutional quality is the ultimate cause for a disadvantageous management framework of natural resources and process of converting revenue flows into economic development. This paper presents a a comprehensive assessment of the linkage between institutional quality and resource dependence in resource-rich transition countries of the Caspian basin (Azerbaijan, Kazakhstan, Russia, Turkmenistan) with transition economies. Drawing on multiple sources, the paper assembles a comprehensive set of information to date pertaining to the institutional quality for diverse countries of this region, both in terms of country background and levels of economic development. Also, using a panel data set containing information on government effectiveness, we establish the determinants of government effectiveness in Azerbaijan, Russia, Kazakhstan, and Turkmenistan over the period of 1996 to 2011. The various combinations of variables were compared experimentally. Once we found the association between government effectiveness and resource rents using panel data analysis, we could rank the countries in terms of government effectiveness. The analysis for the total natural resource rents suggests that, in aggregate, revenues on total natural resources have a negative impact on government effectiveness. The countries with higher average oil rents (% of GDP) and total natural resource rents (% of GDP) have lower rates of government effectiveness. This finding is promising and should be explored with other resource-rich countries. Our results are encouraging and should be validated in a larger set of relevant data which directly and indirectly relates to quality of governance and government effectiveness. These results provide compelling evidence that there is a direct undue influence among variables related to resource abundance and institutional quality. An applied approach in this study can be used in the identification of institutional aspects of the “resource curse” concept. Our study provides the framework for future studies to assess the quality of institutions in resource-rich countries, but has also raised some serious questions. One of the important questions for future studies is to define the mutual influence channels between institutional quality and natural resource dependence using multidimensional variables.

Suggested Citation

  • Jeyhun Mammadov & Assoc. Prof. Dr. Jeyhun Mammadov & Prof. Dr. Ingilab Ahmadov & PhD candidate, Kenan Aslanli, 2013. "Assessment of Institutional Quality in Resource Rich Caspian Basin Countries," International Conference on Energy, Regional Integration and Socio-economic Development 5994, EcoMod.
    • Handle: RePEc:ekd:005741:5994
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    3. Nicoletta Corrocher & Camilla Lenzi & Marie-Louise Deshaires, 2020. "The curse of natural resources: an empirical analysis of European regions," Regional Studies, Taylor & Francis Journals, vol. 54(12), pages 1694-1708, December.
    4. Khoshnoodi, Abdollah & Farouji, Majid Dashtban & de Haan, Jakob, 2022. "The effect of natural resources rents on institutional and policy reform: New evidence," Resources Policy, Elsevier, vol. 78(C).
    5. Ajide, Kazeem Bello & Ibrahim, Ridwan Lanre & Mohammed, Abubakar & Saleh Al-Faryan, Mamdouh Abdulaziz, 2023. "Infectious diseases and health outcomes’ implications of natural resource curse in Africa," Resources Policy, Elsevier, vol. 81(C).

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    Keywords

    Azerbaijan; Kazakhstan; Russia and Turkmenistan; Economic and financial effects of climate change; Socio-economic development;
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