Natural Resources Revenue, Fiscal Policy and Economic Growth: Panel Data Analysis for Sub-Saharan Africa Countries

Abstract

The main purpose of this study is to examine the relationship between natural resources revenue, fiscal policy and economic growth for 35 selected Sub-Saharan African countries. The panel data covering the periods of 1986-2014 was analyzed by using the fixed/random effect model estimation and the panel causality test. We also performed the panel unit root test in order to insure that our variables are stationary. The empirical results indicate that there is insignificant negative effect of natural resources revenue and bad fiscal policy on the economic growth. However, there is significant positive effect of capital formation on economic growth. We also found a bidirectional causality relationship between Natural resources rents and economic growth. There is also unidirectional causality link from government final consumption expenditure to Natural resources revenue and from Natural resources revenue to capital formation. These empirical results mean that Sub-Saharan African countries apply bad fiscal policy to improve the natural resource sector which does not efficiently contribute to the economic growth. This study suggests that countries of Sub-Saharan Africa must apply improved fiscal policy in order to add tax revenue to their total revenue; and they must also use the natural resources revenue in order to invest in other sectors such as education, manufacturing and agriculture.

Natural Resource Rents and Economic Growth Paradox, the Analysis of Resource Curse and Its Transmission Channels in West Africa: The Role of Public Expenditure Policy

“…The indirect effect of natural resource rents on economic growth, which is the subject of this study, implies the public expenditure deficit or ineffectiveness. Cevik et al, (2017) show that Sub-Saharan African countries applied bad fiscal policies that negatively affected economic growth and that natural resources rents, government final consumption expenditure and economic growth had a negative and significant relationship. In addition, the ineffective unproductive expenditure hampers the economic growth, considering that governments in developing countries devote massive amounts of natural resource revenues through corruption in unproductive sectors for political gains, such as vote-buying and patronage in order to stay in power, which may create a heavy debt burden (Robinson et al, 2006).…”

Fiscal policy and economic growth in Sub-Saharan Africa: Do governance indicators matter?

“…Several studies are conducted on the relationship between fiscal policy and economic growth. For instance, [8] has investigated the effect of fiscal policy on GDP growth of Sub-Saharan Africa but the emphasis of the study was to boldly show the effect of natural resources rent revenue on GDP. Similarly, [9] examined the link between fiscal policy and economic growth in sub-Saharan African countries.…”

“…Moreover, except [2,8,9,13] no studies, to the best of investigators knowledge, addressed the linkage between fiscal policy and economic growth in sub-Saharan Africa. Further, except the study [14][15][16] who investigated the direct effect of governance on economic growth of SSA African countries, no empirical works, to the best of author's knowledge, examined the effect of interaction of fiscal policy and governance indicators on economic growth of the region.…”