Natural resource dependence, policy and institutions for environmental sustainability and African welfare

Abstract

In developing countries, particularly in Africa, dependence on natural resources poses a threat to development, leading to poor health, reduced productivity, and increased poverty among nations. This raises significant concerns for the prospects and welfare of Africa, given the rising environmental pollution. However, the literature on the mitigating effect of policies and institutions for environmental sustainability (PIES) on resource‐dependent countries in Africa is scarce. As a result, this study explores the effects of natural resource dependence and the mediating effect of PIES on under‐five mortality and human development in Africa. This novel hypothesis may contribute to the divergent differences in African welfare. Using a panel of 30 resource‐dependent countries spanning 2005 to 2021 and employing the two‐step dynamic generalized method of moments, the study provides evidence in support of the novel hypothesis. The findings show that dependence on natural resources can be either a blessing or a curse for African countries, depending on the degree to which environmental sustainability is embraced. Furthermore, a heterogeneous analysis demonstrates significant support for countries with high policies and institutions for environmental sustainability in mitigating the negative impacts of natural resource dependence on welfare. The study concludes that dependence on natural resources without environmental sustainability cannot guarantee a balance between the well‐being of the economy and the environment. Therefore, environmental management should not be politically motivated so as to sustainably improve human well‐ being in Africa.