Total natural resource rents, trade openness and economic growth in the top mineral-rich countries: New evidence from nonlinear and asymmetric analysis

This paper investigates the impact of total natural resource rent on economic growth by applying the Nonlinear Autoregressive Distributed Lag (NARDL) developed by Shin et al. (2014) and nonlinear Granger causality proposed by Diks and Panchenko (2006) in the case of top ten mineral-rich countries in the world for the period 1981-2017. Empirically, after testing the stationarity properties of the variables, we applied the Johansen Cointegration approach to examine the cointegration relationship between total natural resource rent, trade openness, and economic growth. The causal relationship between the variables investigated by applying the conventional Granger Causality Test and the nonlinear Granger causality test. We employ the BDS Tests to examine the possibility of nonlinear dependence between the variables. Further, we tested the robustness of the asymmetric short- and long-run nonlinearities through positive and negative partial sum decompositions of the predetermined explanatory variables using NARDL, which exhibits robustness to small sample sizes. The empirical results confirm nonlinear cointegration between the variables in Australia, Brazil, Canada, The Democratic Republic of Congo (DRC), India, and Saudi Arabia. Long-run asymmetric effect results show that total natural resource rent has an adverse effect on economic growth in Australia, DRC, and India, therefore, confirming the "resource curse" phenomenon in these countries. However, we found that natural resource rent has a positive effect on economic growth in Brazil and Canada, which implies that natural resources contribute positively to economic growth and therefore is a blessing in these countries. Our Wald test results reveal a long-run asymmetric effect between total natural resource rent and economic growth in Australia, Canada, the DRC, India, and Saudi Arabia and a short run asymmetric effect in India and Saudi Arabia. The results also indicate a positive shock to trade openness has a positive impact on economic growth in most of the countries. The causality analysis in the nonlinear framework suggests that natural resource rent does not cause economic growth in the majority of the countries assessed. We recommend the implementation of more trade liberalization policies to maximize the benefits from trade openness, especially in the countries where the "natural resource curse phenomenon reported. Important policy implications can be learned from the empirical results.