Do countries converge in natural resources rents? Evidence from club convergence analysis

Considering the importance of natural resources in output inequality across the globe which has socio-economic and political consequences, this paper examines the club convergence of natural resources rents across 108 countries for a period of 1970–2019 using clustering algorithms as propounded by Phillips and Sul (2007, 2009) to understand global convergence. The results derived from the analysis indicate that all countries together are not converging to one steady-state, but rather creating two distinct clubs. This suggests that countries are not using the same level of natural resources rents. In particular, countries that lie in club 1 are on the higher side in natural resources rents, whereas club 2 countries are at the lower natural resources rents as a percent of gross domestic product. This recommends that club 1 countries be careful in exploiting the natural resources rents as they are limited. It also leads to a decline in capital when the contribution of natural resources increases in the output. Further, our findings advise that club 1 countries can learn and implement the successful policies of club 2 countries for better and sustainable economic growth and diversification by carefully managing their scarce natural resources.