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Effect of Institutional Quality and Wealth from Oil Revenue on Economic Growth in Oil-Exporting Developing Countries

Author

Listed:
  • Adewale Samuel Hassan

    (Faculty of Economic and Management Sciences, TRADE Research Entity, North-West University, Vaal Triangle Campus, P.O. Box 1174, Vanderbijlpark 1900, South Africa)

  • Daniel Francois Meyer

    (Faculty of Economic and Management Sciences, TRADE Research Entity, North-West University, Vaal Triangle Campus, P.O. Box 1174, Vanderbijlpark 1900, South Africa)

  • Sebastian Kot

    (Faculty of Economic and Management Sciences, TRADE Research Entity, North-West University, Vaal Triangle Campus, P.O. Box 1174, Vanderbijlpark 1900, South Africa
    The Management Faculty, Czestochowa University of Technology, Armii Krajowej 19B, 42-200 Czestochowa, Poland)

Abstract

This article investigates the role of institutional quality in the oil wealth–economic growth nexus for 35 oil-exporting developing countries between 1984 and 2016. To achieve this objective, an empirical model was employed with linear interaction between oil wealth and institutional quality, and estimated by means of panel autoregressive distributed lag (ARDL) with a dynamic fixed effect estimator. From the results, a contingent effect of oil wealth on economic growth, both in the long run and in the short run, was established. Specifically, institutional quality was found to mitigate the negative effect of oil wealth on economic growth in the long run, while in the short run, institutional quality was found to enhance the positive effect of oil wealth on economic growth. Furthermore, the results provide the threshold levels of institutional quality, beyond which oil wealth enhances economic growth, both in the long run and in the short run, for the sampled countries. These results suggest that in order for oil-exporting developing countries to benefit from an increase in oil wealth, they must adopt appropriate policy measures to improve their levels of institutional quality and embed their entire oil wealth-generating mechanism in a sound institutional framework. Also of importance is that governments must ensure sustainable development through the benefits of wealth from oil.

Suggested Citation

  • Adewale Samuel Hassan & Daniel Francois Meyer & Sebastian Kot, 2019. "Effect of Institutional Quality and Wealth from Oil Revenue on Economic Growth in Oil-Exporting Developing Countries," Sustainability, MDPI, vol. 11(13), pages 1-14, July.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:13:p:3635-:d:245016
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