Investigating the Threshold Effects of Natural Resource Abundance and International Trade on Economic Development in Selected Developing Countries, with Emphasis on the Role of Institutional Quality

Elmira  Golmohammadi; Farzaneh Khalili; Nina  Rajaei; Farid  Askari

Authors

Elmira Golmohammadi Ph.D. Candidate, Department of Economics, Ab.C., Islamic Azad University, Abhar, Iran Author https://orcid.org/0009-0003-6058-3420
Farzaneh Khalili Department of Economics, Ab.C., Islamic Azad University, Abhar, Iran Corresponding author https://orcid.org/0000-0002-6125-2231
Nina Rajaei Department of Economics, Ab.C., Islamic Azad University, Abhar, Iran Author https://orcid.org/0000-0001-7033-0871
Farid Askari Department of Economics and Financial Management, Ab.C., Islamic Azad University, Abhar, Iran Author https://orcid.org/0000-0003-1544-2007

Keywords:

Natural resource abundance, economic development, institutional quality, smooth threshold model, international trade

Abstract

Being placed on the path of economic growth and development has always been one of the fundamental concerns of developing countries. In this regard, extensive theoretical and empirical studies have been conducted by growth theorists, and numerous growth models have been proposed. In explaining the causes of growth, these models examine factors such as institutional arrangements and economic policies. According to these studies, concepts such as good governance and institutional quality can provide a basis for addressing development challenges, democracy, corruption, and other related issues. In general, inefficiency in institutional quality and the absence of effective governance are among the major obstacles to growth in developing countries, to the extent that Montesquieu argued that corruption can easily transform a useful and healthy political system into a harmful and unhealthy one. In this study, model estimation was analyzed using the Panel Smooth Transition Regression method within the framework of panel models (PSTR) in selected oil-exporting countries. The statistical sample of the present study consists of economic data from selected oil-exporting countries in the Middle East over the period 2000 to 2023. The selected countries include Algeria, Bahrain, Egypt, Iraq, Iran, Jordan, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates. Using a PSTR model in which international trade is the transition variable, the economic development function is modeled. The estimation results of the linear part of the model, namely the first regime, show that the variables of institutional quality in natural resource abundance, institutional quality in financial development, and inflation rate have a negative relationship with economic development. Moreover, the estimation results of the nonlinear part of the model, namely the second regime, indicate a positive relationship between oil revenue growth, international trade, and physical capital with economic development.

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