Institutional Quality, Income per Capita Growth and Resource Endowments for 87 Developing Countries, 1991-2010

The basic econometric model for the suggested interaction effect of resource endowments and institutional quality on economic growth is borrowed from Boschini et al., 2007 and Brunnschweiler, 2007. The approximation for institutional quality must be carefully chosen. The standard proxy variables that are typically employed in the literature with respect to the resource curse are indices such as ICRG, BERI, BI ratings (pioneered by Knack and Keefer, 1995; Mauro, 1995), and the Worldwide Governance Indicators (WGI) suggested by Kaufmann et al. (2010). However, a potential bias in these indicators may arise from the fact that they are based on the subjective assessments of respondents. For instance, the evaluators may be more likely report that governance in a country is good during times of strong economic performance. The use of CIM also has potential risks if the measure is idiosyncratic and irrelevant to contract enforcement and property rights. Clague et al. (1999) reviewed case studies from several countries and found that CIM is a good measure of institutional quality, though some country examples demonstrate idiosyncratic cases. We also use the indicators of governance used by Kaufmann et al. (2010) such as Voice and Accountability (VA), Political Stability and the Absence of Violence (PA), Government Effectiveness (GE), Regulatory Quality (RQ), Rule of Law (RL), and Control of Corruption (CC)—with CIM, was illustrated to examine the suitability of CIM as an institutional quality variable.

Purpose: The data obtained is employed for investigation of dissertation. My main objective in this analysis was to assess the impact of resource rent shares of income per capita through various resource curse channels. I hypothesized that natural resource abundance only encourages economic development in countries with high quality economic institutions.