Heterogeneous role of resource dependence on industrialization in developing countries

This paper empirically investigates the role of natural resources on industrialization in a sample of 128 developing countries from 1990 to 2019. Results reveal three main facts. First, resource dependence (rents-to-GDP) impedes total and manufacturing value-added and employment, except for the construction industry. Second, resource dependence increases (lowers) total industrial value-added below (above) a threshold of 70% of GDP, whereas this threshold is 48% for manufacturing sector. Third, productive and redistributive institutions lessen these adverse effects. This study revealed that resource dependence confirms the crowding-out effects of natural resource, raising concerns about a long-term curse. Nonetheless, strong institutions may effectively foster economic growth and structural change by offering a framework of resource wealth management. Results of this study suggest that, with proper management system, it is possible to use rents from natural resources to finance industrialization in developing countries.