How the Resource Curse Affects Economic Growth Across Resource-Rich Developing Countries? Evidence Through the Lens of Taxation and Corruption

Abstract

Notably, countries with great natural resource wealth have often failed to develop more quickly than those without much wealth. This development outcome of resource abundant countries has been called the “natural resource curse”. This paper examines how the natural resource curse has affected economic growth across resource-rich developing economies and especially focuses on the relationship between natural resource wealth, corruption in the public sectors, taxation systems, and economic growth. Using panel data for 86 resource-abundant developing economies and covering the period from 1998 to 2016 in OLS, Fixed-Effects, and Three-stage Least Squares models, I found that there is a negative relationship between natural resource wealth and control of corruption. Also, I learned from my regression results that rents from natural resources can crowd out states’ non-resource tax incomes. Moreover, in all of my three model specifications, I found a positive and significant relationship between taxation and corruption control, indicating that investment in the construction of tax systems in developing countries with rich resource deposits can contribute to increases in their non-resource tax incomes. In addition to taxation, this paper also discusses resource-to-cash programs, which are increasingly and widely regarded as a measure to handle the issues of corruption control and the natural resource curse as well as have been adopted and implemented by several countries; and identifies their advantages in theory and limitations in applicability. Overall, the thesis indicates that developing economies bestowed with plentiful natural resources must first devote themselves to the re-establishment of taxation systems and reinforcing the regulatory and monitoring capacities within the public sector before adopting a resource-to-cash program.