Abundant Resource Endowments, Institutions and Economic Growth: A Theoretical Framework and Validation Using China’s Provincial Data

Abstract

What is the significance of abundant natural resources to the economic development of a country? In this study, we explain the effects of institutions on the economic growth patterns of resource-rich countries theoretically from a macrodynamic perspective by explicitly introducing a capital accumulation and institutions approach to the Big Push model. Our analysis results clarify that two natural-resource-owning countries implementing different institutions converge on two different steady states (high and low). Furthermore, we validate the relationship between the extent of natural resource endowment, the quality of institutions and economic growth using China’s provincial data. The results suggest that the resource curse is present in China’s provincial data; however, it is possible to convert natural resources from a curse to a grace by improving the quality of institutions.