Testing resource curse triangle hypothesis: Extractives dependence, governance quality and economic growth

The aim of this paper is to examine so called resource curse triangle hypothesis. Employing panel of 43 resource rich countries for 2002-2011 period, authors apply panel ARDL and GMM techniques to investigate long-run relationship between extractive dependence index (EDI), governance quality indicators (voice and accountability; political stability and no violence; government effectiveness; regulatory quality; control of corruption; rule of law) and GDP per capita (PPP). Research reveals existence of strong bidirectional causality in all cases: low governance quality and higher GDP per capita leads to increasing dependence from extractives. In the long run, better governance quality brings higher GDP per capita growth. Increasing extractives dependence also affects GDP per capita growth positively. On the other hand, empirical results reveal positive long-run causality from GDP per capita and negative long-run causality from extractives dependence to governance quality indicators. According to empirical findings, improving governance quality should be priority in resource rich economies which will enhance GDP per capita growth and decrease dependence from extractives.