Does economic complexity provide antidotal pathways to evade the resource curse syndrome? A novel role for institutions

Abstract

This study offers the first empirical attempt to examine the role of institutional quality in influencing the contribution of economic complexity to evading resource curses and reducing resource dependency in resource‐rich countries. We analyze data from 20 resource‐rich African countries covering the years 1995–2021, using fully modified ordinary least squares, a Driscoll–Kraay nonparametric covariance matrix, and the method of moments‐quantile regression. These countries predominantly suffer from resource curses, resource dependence, weak economic complexity, and deficient institutions. The findings reveal that economic complexity has no direct potency to spur less reliance on natural resources and mitigate resource curses. Institutional quality, on the other hand, creates stimuli and technical support that facilitate less resource dependence and offer countermeasures to evade resource curses in resource‐rich African countries. Interestingly, institutional quality strengthens economic complexity by increasing knowledge‐based productive capacity, technological innovation, extending non‐resource sectors and exports, promoting innovative business opportunities, fostering entrepreneurship, diversifying economies, reducing resource dependence, and mitigating resource curses. The study concludes that institutional quality enables economic complexity to spur less reliance on natural resources and pave the way to evade resource curses in resource‐rich African countries. The primary policy implications of the study suggest that the capacity of resource‐rich African countries' economic complexity to reduce resource dependence and provide strategies to circumvent the resource curse is contingent upon the efficiency and effectiveness of their institutions.