Resource curse, Institutional quality and economic development in Oil-Rich Countries The case of Arab. Countries. Brahim Bergougui 1, Sami Lylia 2. 1 Centre ...
Resource curse, Institutional quality and economic development in Oil-Rich Countries The case of Arab Countries Brahim Bergougui 1, Sami Lylia 2 1
Centre for Research in Applied Economics for Development (CREAD),Algeria 2 Preparatory School in economics, business and management, Algeria
Multidisciplinary Academic Conference: Management, Marketing and Economics (MAC-MME 2017) Prague, Czech Republic Friday - Sunday, December 8 - 10, 2017 Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
Prague /December 10, 2017
introduction
Outline
1
Introduction
2
Research question
3
Data and Estimation methodology Data Estimation methodology Model specification
4
Empirical results
5
Conclusion
Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
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introduction
Introduction
Natural resources are expected to be used as a gift from nature, thus achieving the developmental purposes to stimulate growth and eventual development. We suppose natural resource-rich countries have an advantage and better economic growth compared with resource-poor countries. Surprisingly, the evidence from the vast majority of resource-rich countries showed that Natural resources seem to be more a curse than a blessing.
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introduction
Introduction
In the last two decades of empirical research on the effect of natural resources on economic growth have produced 43 econometric studies reporting 605 regression estimates of the effect. (Tomas, Roman And Ayaz 2016)
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introduction
Introduction
Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
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introduction
Introduction
Brahim ,Sami (CREAD, PSEBM)
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introduction
Introduction In the literature, there are at least three different explanations for why resource rich countries might be subject to this curse. 1
rent-seeking theories
2
Dutch disease models
3
Institutions explanations
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introduction
Introduction The evolution of resource curse thesis:
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Research question
Outline
1
introduction
2
Research question
3
Data and Estimation methodology Data Estimation methodology Model specification
4
Empirical results
5
Conclusion
Brahim ,Sami (CREAD, PSEBM)
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Research question
Main question
Why Arab oil-rich countries develop at a slower rate compared with less fortunate ones? Secondary questions 1
Have oil Arab rich countries benefited from the rents generated by this resource?
2
Do differential effects depend on the quality of institutions?
3
What are the effects of oil resources had on the institutions-growth link in oil resource-rich Arab countries?
Brahim ,Sami (CREAD, PSEBM)
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Research question
To answer these specific questions, we applied an empirical analysis by estimating the effects of oil resource abundance on real GDP per capita in oil producing countries. We estimate if good institutions can reverse the possible curse and turn it into a blessing by interacting different measures of institutional quality with oil abundance.
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Data and methodology
Outline
1
introduction
2
Research question
3
Data and Estimation methodology Data Estimation methodology Model specification
4
Empirical results
5
Conclusion
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Data and methodology
Data
- Sample: Algeria, Egypt, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UA Emirates - period: 1996 -2015 - Variables: -Depend variable: RGDPPC "log GDP per capita (constant 2010 US$). -Control variables: Inv: log Percentage share of gross fixed capital formation in GDP. Pop_growth: population growth. -Oil resource abundance variables: -Institutional variables: OilXpc: oil export per-capita.
Goveff: government effectiveness.
NetoilX : log oïl net export.
RL: role of law.
OilPPC: oil production per-capita.
RQ: Regulatory Quality
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Data and methodology
Estimation methodology
We use three different of the panel data models: 1
The pooled OLS
2
Fixed effect
3
Random effect
We hired the F-test to test between pooled OLS and fixed effect model. The Hausman test is employed to determine between random effect and fixed effect model.
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Data and methodology
Model specification
The empirical model is based on Brunnschweiler (2008) by using the following linear cross-country growth equation: RGDPit = δ0 + δ1Xit +δ2 Oilit + δ3Institutionsit + δ4 (Oil*Institutions)it + εi
RGDPPCi : is the real GDP per capita in country i. Xi : represents a set of control variables employed in the model. Oili : represents the vector of oil resource abundance variables in each country. Institutionsi : is used to represent the vector of institutional variablesin each country.
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Data and methodology
Model specification
Then we proceed to explicitly specify the panel models estimated in this study in three Equations: Equation 01:
RGDPCit = δ0 + δ1 Invi,t + δ2 Pop_growthi,t + δ3 OilXpci,t + δ4 NetoilXi,t + δ5Oilppci,t +εi,t Equation 02: RGDPCit = δ0 + δ1 Invi,t + δ2 Pop_growthi,t + δ3 OilXpci,t + δ4 NetoilXi,t + δ5Oilppci,t + δ6 GovEffi,t + δ7 RQi,t + δ8 RLi,t + εi,t
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Data and methodology
Model specification
Equation 03:
RGDPCit = δ0 + δ1 Invi,t + δ2 Pop_growthi,t + δ3 OilXpci,t + δ4 NetoilXi,t + δ5Oilppci,t+δ6 GovEffi,t +δ7RQi,t +δ8 RLi,t+δ9 oillPPC* GovEffi,t +δ10 oillPPC*RQi,t + δ11 oillPPC*RLi,t + δ12oilXpc* GovEff i,t + δ13 oilXpc*RQi,t + δ14 oilXpc*RLi,t+δ15 netoilX*GovEffi,t+δ16netoilX*RQi,t+δ17 netoilX*RLi,t + εi,t
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Empirical results
Outline
1
introduction
2
Research question
3
Data and Estimation methodology Data Estimation methodology Model specification
4
Empirical results
5
Conclusion
Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
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Empirical results
There are three different regressions: First, we estimate the effect of natural resource abundance. Then we introduce institutional quality. finally the interaction term
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Empirical results
Model 01: “Natural resources and real GDP per capita”
These results imply that the positive effect of rent-seeking behavior supported by poor institutional quality in these countries, leading to positive effect on growth.
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Empirical results
Model 02: “Natural resources, institutions and real GDP”
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Empirical results
The estimation of model 02 confirming that “institutions matter” To cancel the resource curse in some of these countries, which achieve a good institutional quality. This means that natural resources abundance matter and their impact differs depending whether the quality of the institutions are good or bad.
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Empirical results
Model 03: “Natural resources, institutions and real GDP”
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Empirical results
The estimation results of model 03 shows: Some Arab countries have sufficient institutional quality to insulate the economy from the resource curse. Most of Arab oil-rich countries have insufficient institutional quality to insulate the economy from the resource curse. The behaviors of the relationships between oil abundance and economic growth are different for low- and high-quality institutions.
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Institutions and economic development
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Conclusion
Outline
1
introduction
2
Research question
3
Data and Estimation methodology Data Estimation methodology Model specification
4
Empirical results
5
Conclusion
Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
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Conclusion
There are a several findings:
First: When the oil resource abundance measured by oil production per capita, is detrimental to economic development. Natural resources seem to be a curse for the oil producing Arab countries in the sample as a whole. The policy implication is that these countries could not run the huge earnings from crude oil production appropriately into activities that enhance growth and development indicating a resource curse instead of blessing.
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Conclusion
This negative impact of oil production has led to general instabilities of political and economic live of the people in some of oil producing countries. While the oil export per capita showed a positive effect on growth, this implies that crude oil exports are a significant factor that can transform the growth of the oil producing Arab countries.
Second: Among the various institutional indicators, the rule of law has the largest economically positive effect on economic development in the oil producing Arab countries. This is not surprising since some of oil producing Arab countries started improve their institutions
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Institutions and economic development
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Conclusion
Finally: The interaction of oil-resource abundant and institution variables as the standard measure of the ability of the institutions to be able to turn resource curse into blessing, matter for economic development. In terms of policy implications, this study suggests that policy makers need to strengthen and improving institutional quality, which is likely to deliver much effects on economic performance in these countries.
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Conclusion
Brahim ,Sami (CREAD, PSEBM)
Institutions and economic development
Prague /December 10, 2017