The impact of oil rents and institutional governance on human development index: evidence from oil exporting Sub-Saharan African countries.

Abstract

This study aims to empirically verify the impact of oil rents, their transmission mechanisms, and institutional governance on the human development index for 11 oil exporting Sub – Saharan Africa countries from 2000 to 2020. The explanatory variables are oil rents as % to GDP, Foreign direct investment inflow as % to GDP, trade openness as % to GDP, government effectiveness index, income inequality index and the corruption perception index.
Primary investigation was applied, such as central tendency and also bivariate plots between oil rents and human development index. Further investigation was performed employing balanced panel data techniques. Instrumental variable estimation which is a valuable strategy to address endogeneity and strengthen the credibility of the research finding was applied.
The initial analysis reveals that the characteristics of the data set for those countries in the sample are asymmetrical; they are skewed to the right, except for the human development index variable, which has an almost equal distribution. Moreover, the 11 SSA oil-exporting countries remain at low levels of human development index.
The two-way fixed effects model was estimated. However, it is necessary to consider the endogeneity issue. Thus, instrumental variables were employed, supported by diagnostic analysis. The model was improved by correcting for endogeneity; the magnitudes of some estimation coefficients of the explanatory variables changed considerably; and all the coefficients were significant, except foreign direct investment. The results reveal that, the oil rents had no negative impact on the human development index in those countries in the sample, and this is evidence that oil rents are not a curse per se.
Interestingly, the findings show a positive association between government effectiveness and the human development index. This could be because this index is aggregate index consisting of different indicators. As for trade openness, it has a detrimental impact on such nations' human development indices. This is because skilled labour is more likely to benefit from trade openness than unskilled labour.
The findings add to a new line of investigation that addresses a critical gap in our understanding of the resource curse, human development and has policy implications.