Journal of Economic Modeling Research

Natural resource rent affects countries’ economies through various channels. Revenues from the natural resources sales are expected to boost countries' economic growth, but the economic experience of recent decades reveals the numerous economic problems in these countries, the most important of which may be the increase in the shadow economy size. Moreover, the institutions specify the significant economic axes like resources and assets distribution in the community, so that the level of institutional quality brings about the optimal resource directing and their allocation through economic stability and affects the shadow economy volume by increasing economic stability and reducing uncertainty. The purpose of the present study was to examine the effect of natural resource rent and institutional quality on the shadow economy in 87 countries with high and low inflation rates from 2000 to 2018. The analysis method was system generalized-method of moments (System GMM). Smart PLS software was used to estimate the shadow economy. The results indicated that in both low-inflation and high-inflation countries, the increase in institutional quality has reduced the size of the shadow economy, and the rent of natural resources has had a positive relationship with the volume of the shadow economy

Despite the notion that economies with abundant natural resource revenues should have a lower default risk and thus a lower share of public debt, this notion is not generally valid. Natural resources in these countries serve as a guarantee to procure more public loans and binds them in debt trap. In this regard, this article examines the short-term and long-term effects of natural resource rent on public debt in developing countries during 2000-2020. For this purpose, first, a model was designed with the presence of basic variables affecting public debt, along with the variable of share of natural resource rent from GDP, and using panel co-integration tests, the existence of a long-term equilibrium relationship between the variables of the model was confirmed. Finally, the pooled mean group (PMG) approach was used to measure long-term and short-term relationships, and the e Dumitrescu-Hurlin test was used to determine causality. The findings of this research show that the effect of the share of natural resource rent from GDP on public debt is negative (and significant) in the short term and positive (and significant) in the long term. The results of the Dumitrescu-Hurlin test also indicate the existence of a two-way causal relationship between the abundance of natural resources and public debt. Based on this, it can be said that the abundance of natural resources in developing countries leads to higher public debts in the long term, and high levels of public debts also cause rapid extraction of natural resources in these countries.