A boon or a bane? : Testing the natural resource curse hypothesis in Kazakhstan

Samambet, Mansiya (2024) A boon or a bane? : Testing the natural resource curse hypothesis in Kazakhstan. HUNGARIAN STATISTICAL REVIEW, 7 (2). pp. 41-75. ISSN 2630-9130

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Abstract

The nexus between foreign direct investment (FDI), natural resource endowment, and their impact on sustained economic growth is contentious. This study investigates the symptoms of resource curse hypothesis and the effects of FDI on Kazakhstan’s economic growth. This study covers from 1990 to 2022 and employs the autoregressive distributed lag model and Vector Error Correction method for causality. The Bounds cointegration results reveal the existence of long-term equilibria between GDP per capita and the predictors. The findings indicate a significant impact of oil rents on economic growth, contradicting the resource curse hypothesis and instead suggesting a resource boon. In stark contrast, the impact of FDI on Kazakhstan's economic growth is insignificant despite the presence of a causal nexus. Economic freedom, gross capital formation, governance, and export diversification have positive and significant effects on GDP per capita growth, with varying effects in the short- and long-run. As expected, the results establish a long-run causal relationship between export diversification, FDI, economic freedom, governance, oil rents, and economic growth. This underscores the fundamental role of the interplay between diversification, economic freedom, governance, and oil rent in fostering sustainable economic growth. Additionally, economic freedom stimulates gross fixed capital formation, indicating that it enhances domestic investment. Notably, these findings refute the crowding-out effect of FDI on domestic investment in Kazakhstan. Consequently, to avoid the resource curse and Dutch disease syndrome, this study advocates the enhancement of good governance capabilities in Kazakhstan. Therefore, we recommend that good governance be used to reconcile the twin goals of economic diversification and deriving benefits from oil resources, ultimately transforming oil wealth into a boon for Kazakhstan.

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