Oil dependence, institutional quality and economic growth: A panel vector autoregression approach

Resources are the foundation of economic growth. With speedy economic and population growth, economic growth is facing a scarcity of resources worldwide. Resource-economy co-ordination has become every government’s main focus in reaching strategic development goals in countries that are on the path of rapid economic development. Sustainable economic development in a country requires resources and secure environment. Nowadays economic growth is facing serious limitations in resources and environment, which is an unavoidable stage in the process of industrialization. The purpose of this study is to inspect the effect of oil dependence and institutional quality on economic growth with the Panel VAR approach. In this regard, 14 developed countries and 10 developing countries between the years 1995-2019have been selected. The results of the research with reaction functions tells us that the shock from the institutional quality index economic growth in developing countries is negative in the primary stages and turns positive later on, but in developed countries is positive throughout the period. Moreover, the shock of renting crude oil in developing countries affects economic growth positively at first and when reaching its final stages this trend becomes negative. Also, the shock of renting crude oil has only a positive effect in the first periods and other periods have a negative effect. In the end the oil share shock is positive at first and later on has a negative effect on economic growth, but in developed countries has positive affect at first and later on of the period, but has a negative affect on economic growth in the middle. JEL Classification: C33,O13,Q38 Keywords: institutional quality, economic growth, oil dependence, oil rent, panel vector autoregression