The complementary roles of human capital and institutional quality on natural resource - FDI—economic growth Nexus in the MENA region

A number of studies have examined the roles of natural resources endowment on economic prosperity (or otherwise). While doing this, some researchers have identified institutions (while some others have suggested human capital) as a conduit via which natural resources endowment stimulates the economy. To lend a voice to this important policy issue, this study measures the roles of human capital and institutional quality on the nexus between natural resources endowment, FDI and economic growth in the MENA region. Based on the ARDL technique on yearly data spanning 1990–2017, our empirical estimates suggest that natural resources endowment is positively connected with growth, while human capital exerts both negative and positive effects—even though the negative effect dominates. Again, while the aggregated institutional quality produces a negative estimate, a mixed result is obtained when it is disaggregated. Moreover, FDI stimulates growth in the short-run, but not in the long-run; human capital is observed to reduce the negative effect of FDI on the growth of the MENA region by 0.01%, while institutions alter the negative FDI–growth relationship earlier obtained by 0.15%. Finally, the interaction effect of natural resources endowment and human capital on—growth is positive; a positive coefficient is equally obtained for the interactive role of natural resources endowment and institutional quality. These explain that human capital influences the growth effect of natural resources endowment by 0.01%, even as institutional quality stimulates the positive impact of natural resources endowment on economic growth by 0.23%.