How Does the Resource Curse Influence Economic Performance? Exploring the Role of Natural Resource Rents and Renewable Energy Consumption in South Asia

Abstract

To promote sustainable development and global prosperity, policymakers collaborate on strategically harnessing natural resources and promoting renewable energy consumption to stimulate economic growth. This study examines the resource curse hypothesis across eight South Asian countries, Nepal, Sri Lanka, the Maldives, Bhutan, Pakistan, India, Afghanistan, and Bangladesh, from 1996 to 2022 using the ARDL model, multicollinearity analysis, unit root testing, and cointegration techniques. The findings reveal diverse effects in both the short and long runs. Natural resource rents have varying impacts on economic performance, experiencing negligible or even negative effects in the short term. In contrast, others show positive long-term relationships between natural resource exploitation and economic growth. The analysis of key economic factors, such as human capital, capital investment, energy consumption, and trade openness, shows that each influences economic performance in specific and measurable ways. This study highlights the significant role that natural resources play in shaping economic outcomes, which tends to negatively affect investment in many instances, underscoring the need for efficient resource management to avoid potential economic stagnation. This result may stem from the high upfront costs of renewable energy infrastructure, which outweigh short-term benefits, and the lack of supportive policies for renewable energy projects. This research confirms the presence of the resource curse in South Asian countries, stressing the need for efficient resource management strategies to prevent economic instability and mismanagement. Governments must implement policies that promote trade diversity and openness while fostering sustainable growth through improved resource governance.

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