The Role of Natural Resources Endowment in the African Economies’ Economic Growth-Capital Flows Nexus

Abstract

This article examines the role of natural resource endowment in the economic growth-capital flows nexus in African economies. Utilizing the system generalized method of moments (GMM) approach and Westerlund regression approaches suitable for cointegration estimation of panel data, from 54 African countries over the time frame from 2012 to 2020. Considering the joint influence of natural resource and flows of capital on economic growth. We found that there is a resource threshold beyond which natural resources either amplify or mitigate the effects of capital flows on growth in the continent. For example, in order for capital flows to have a positive long-run influence on economic growth in African countries, natural resource rent levels must be at least 2.04 turning point (threshold). This means, the positive impact of capital flow on economic growth dependent on natural resources extractions in African countries. Finally, human capital has significant long-term spill-over impact on economic growth in African economies based on the results of Westerlund cointegration tests, and with a marginal effect of 9.67 threshold as obtained using system GMM. Thus, policymakers should focus on strategies and policies aimed at developing human capital in the continent to reduce the continent’s high level of reliance on natural resource extraction which will subsequently leads to protection of the environment from degradation.