Oil rent and the quality of institutions in Sub-Saharan African countries: Evidence using the dynamic panel threshold model

Abstract

This paper aims to determine the optimal level of oil rent having a positive effect on the quality of institutions in Sub-Saharan Africa. The study covers the period 1995 to 2016, for a sample of 12 countries. To achieve this objective, we used the threshold effect model of the DF-GMM estimator inspired by Seo and Shin (2016), put into practice by Seo et al. (2019) in stata. To do this, we used three (03) measures of the quality of institutions namely balance of power, control of corruption and government efficiency. The results of the study show that: i) The direct effect of oil rents on the quality of institutions is negative, supporting the political resource curse hypothesis. ii) The relationship between oil rent and the quality of institutions is positive for a high level of oil rent. In particular, above the threshold of 29.935, 22.526 and 18.263. For the robustness analysis, we conduct a sensitivity analysis using the fixed-effect dynamic threshold model of Couttenier (2012). The results of the analysis confirm those found by the DF-GMM model of Séo and Shin (2016).