Asymmetrical effect of oil and gas resource rent on economic growth: Empirical evidence from Ghana

Adabor, Opoku; Buabeng, Emmanuel Article Asymmetrical effect of oil and gas resource rent on economic growth: Empirical evidence from Ghana Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Adabor, Opoku; Buabeng, Emmanuel (2021) : Asymmetrical effect of oil and gas resource rent on economic growth: Empirical evidence from Ghana, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 9, Iss. 1, pp. 1-21, https://doi.org/10.1080/23322039.2021.1971355 This Version is available at: https://hdl.handle.net/10419/270151 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. Published online: 15 Sep 2021. Submit your article to this journal Article views: 1898 View related articles View Crossmark data Citing articles: 3 View citing articles DEVELOPMENT ECONOMICS | RESEARCH ARTICLE Asymmetrical effect of oil and gas resource rent on economic growth: Empirical evidence from Ghana Opoku Adabor 1 * and Emmanuel Buabeng 1 Abstract: We investigate the asymmetric effect of oil and gas resource rent on economic growth of Ghana for the period 2010 to 2019, dwelling on the hypothesis that natural resources extraction has double-edge effect on economic growth. Using Nonlinear Autoregressive Distributed Lag (NARDL) model as estimation strategy, we find that oil and gas resource rent affect economic growth asymmetrically. Specifically, our NARDL estimates suggest that oil resource rent promotes economic growth significantly, providing empirical evidence in support of the resource blessing hypothesis. However, gas resource rent exerts a significant adverse effect on economic growth, providing empirical evidence to support the resource curse hypothesis. Our findings point to the need for policies that promote the expansion of oil resources firms than gas resource firms in the short run while long term policies should target setting up both oil and gas resource firms in developing countries, especially countries with similar socioeconomic and demographic setting like Ghana. Finally, government and monetary authorities should ABOUT THE AUTHORS Opoku Adabor holds B.A and Master’s in economics from Kwame Nkrumah University of Science. He is currently a PhD student at RMIT University, Australia. He has worked as graduate research assistant at KNUST. His research interest includes macroeconomics, international, monetary economics and economic policy analysis. Dr. Emmanuel Buabeng is a Senior Lecturer at the Department of Economics, Kwame Nkrumah University of Science and Technology (KNUST), Kumasi-Ghana. He received B.A degree, Master’s and PHD degree in economics from Kwame Nkrumah University of Science and Technology (KNUST). His research interest includes microeconomics, macroeconomics economic analysis and financial economics. PUBLIC INTEREST STATEMENT The resource blessing hypothesis implies that natural resources such as oil and gas contribute significantly to sustainable economic growth while the resource curse hypothesis implies that some developing countries are genuinely rich in terms of natural resources but do not fully benefit from them since they have not been able to attain sustainable growth while other counties, similarly endowed, have attained sustainable economic growth and development. This implies that natural resources extraction have two opposing effect on economic growth and development but the extant literature in developing countries largely focused on testing the resources curse hypothesis. We contribute to the extant literature by examining whether oil or gas resources extraction would support the resource blessing hypothesis in developing countries (Ghana specifically). We find that oil resource extraction contributes significantly to economic growth compared to gas resource extraction. Our findings suggest that more effort and policies should be geared towards oil resource extraction in developing countries since oil resource extraction supports the resource blessing hypothesis. Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 1 of 21 Received: 10 May 2021 Accepted: 17 August 2021 *Corresponding author: Opoku Adabor, Department of Economics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana E-mail: [email protected] Reviewing editor: Raoul Fani Djomo Choumbou, University of Buea, Buea, CAMEROON Additional information is available at the end of the article © 2021 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license. promote policies that attract foreign direct investment inflow in Ghana while taming inflation and lending rate towards growth enhancing targets. Subjects: Economics; Macroeconomics; Monetary Economics; International Economics; Development Economics Keywords: Economic growth; natural resource; gas resource rent; oil resource rent; asymmetric; NARDL and Ghana 1. Introduction Natural resources are initial essential natural inputs of human society that can be obtained freely from nature for sustainable economic growth and development (Wang et al., 2021). Thus, abundance natural resources can provide the energy, food and raw materials needed for economic growth, which is relatively conducive to economic development. Natural resources contribute to economic growth and development by providing initial inputs for production and generating significant foreign revenue through their exports. Despite the relevant contributions of natural resources to economic development, the empirical relationship between natural resource rent and economic growth has received far less attention in the extant literature. Specifically, studies that focused on testing the resource blessing hypothesis in developing countries are relatively scanty in the literature. Accordingly, there is a general lack of robust studies that examine the quantitative effect of oil and gas resource rent on economic growth in Ghana. Few studies that examine natural resource rent in Ghana (Acquah, 1995; Armah et al., 2014; Kendie & Guri, 2007) lack good empirical and quantitative grounds against which to formulate and judge fiscal policy adjustment plans concerning efficient extraction of natural resources to accelerate economic growth. Natural resources could be defined as stock of natural assets that are available in the natural environment, which are scarce in nature but economically useful in the production process or for consumption after minimal processing, in raw state or finished product (Venables, 2010). While this definition explicitly explains the imperative benefits associated with natural resources extraction (Collier & Venables, 2010), both theoretical and empirical literature argued that natural resources could be either a blessing or curse to a country. Thus, natural resources can have two opposing impact on sustainable economic growth and development of an economy. Classical economist including David Recardo and Adam Smith developed the natural resource blessing hypothesis, which suggests that countries endowed with abundant natural resources would do well in terms of economic development as compared to countries with scanty natural resource. This hypothesis was supported by evidence from Sachs (2007) who found that oil resource rent promotes economic development through increasing consumption, investment and public budget. However, proponent of the resource curse hypothesis argued that natural resources breeds conflict, war and violence which exacerbate poverty to hinder economic growth and development (Auty, 1990; Gelb, 1988; Karl, 1997). Thus, natural resource could be a limitation to economic development. Oil and gas resources are natural wealth or asset, which contribute immensely to economic growth and development across different countries (Badia-Miró et al., 2015; Gylfason, 2002). These natural resources are highly valuable because of their enormous impact on the economy in the form of employment, revenue contribution, social contribution and poverty reduction (Bornhorst et al., 2009; Freudenburg & Gramling, 1994; Weber, 2012). For instance, the resource sector provides employment opportunity and livelihood in poor communities via provision of infrastructure in areas where they are located. Poor individuals living in rural areas depend directly on these natural resources for survival. Natural resources also contribute to revenue generation through tax payment by firms engaged in natural resources extraction (Mawejje, 2019). Government earns part of revenue generated from natural resource extraction for infrastructure development and provision of essential social amenities such as water and electricity which promote economic growth and development (Humbatova & Hajiyev, 2019). Employees and employers working in the resource sector also earn income for consumption to improve their standard of living (Bankası, 2017). In Ghana, natural resources contribute to about 40% of total Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 2 of 21 foreign revenue generated through their exportation. Ghana is an export driven growth economy and significant proportion of Ghana’s foreign revenue is made out of exporting natural resources such as gold, crude oil, cocoa, timber, bauxite and others (Aryeetey & Kanbur, 2017). Hence, the Ghanaian economy would be weakening without natural resources exportation. The adverse effect of natural resources on an economy manifest in the form of increase in prices of basic commodities, displacement of individuals, conflict, migration and environment pollution (Bannon & Collier, 2003; Humphreys, 2005; Nesheim et al., 2006). For instance, oil and gas production areas in Ghana have been hit with overpopulation (Asafu-Adjaye, 2010) leading to high rate of unemployment, inflation, high cost of accommodation, corruption and conflict (Plänitz & Kuzu, 2015). Natural resource extraction causes pollution and emit CO 2 into the atmosphere which are detrimental to once health (Acquah-andoh et al., 2018; Sakyi et al., 2012). Furthermore, proponents of “resource curse” theory postulate that the inhabitants of developing countries especially, African countries that significantly depend on natural resources are extremely poor, illiterates and unemployed (Frankel, 2011; Heller, 2006). The study examines the effect of oil and gas resource rent on economic growth, using Ghana as a case study. We utilized monthly time series data from the World Development indicator of the World Bank and Bank of Ghana over relatively short period of 2010 to 2019. We account for the asymmetries in oil and gas resource rent using nonlinear ARDL model. Our empirical results suggest that profit/income made out of oil resource extraction promotes economic growth while cost incurred from oil resource extraction affects economic growth negatively but insignificant. These findings contradict previous studies (Cockx & Francken, 2016; Moradbeigi & Law, 2017) but support the resource blessing hypothesis. For gas resource rent, income/gains made out of gas resource extraction affects economic growth of Ghana positively but not significant while cost incurred from oil resource extraction exerts significant and negative effect on economic growth of Ghana. Our NARDL estimates also suggest that lending rate, exchange rate and foreign direct investment significantly affect economic growth of Ghana. Our literature search indicates that most of the existing studies largely focused on testing the resource curse hypothesis in developing countries which implies that developing countries do not attain maximum benefit from natural resource extraction (Ahmed et al., 2016; Apergis et al., 2014; Apergis & Payne, 2010; Cockx & Francken, 2016; Moradbeigi & Law, 2017; Van der Ploeg & Venables, 2009). Few studies in this strand of literature also focused on testing resource bless hypothesis, especially in developed countries (Alexeev & Conrad, 2009; Boyce & Emery, 2011; Michaels, 2011). Other studies have also examined the causal relationship between natural resource extraction and economic growth and found two different outcomes. Some studies found unidirectional causality running from oil resource extraction to gross domestic product without feedback (Apergis et al., 2014; Quixina & Almeida, 2014). other studies also found bidirectional causality between natural resource extraction and economic growth (Hamdi & Sbia, 2013b). Regarding related empirical studies in Ghana, Dah and Sulemana (2010) examined how oil production affect economic development of Ghana. The study found that oil production attracts more foreign direct investment to promote economic development. We make at least three contributions to this strand of literature. First, the outcome in the literature is mixed. Secondly, studies in Ghana that empirically test the resource blessing hypothesis are relatively scanty. Hence, the study fills this literature gab. Additionally, this study departs from previous studies in literature by examining the effect of oil and gas resource rent on economic growth to verify whether oil or gas resource extraction support the resource bless hypothesis in developing countries. Lastly, due to the important contributions of natural resources to economic growth and development, inadequate natural resource extraction does adversely affect the social and economic development of a country. To avoid such situation, empirical studies are carried out among other effort to regulate and increase natural resource extraction over a long period. Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 3 of 21 The rest of the paper is organized as follows; overview of oil and gas production, theoretical framework/empirical studies, data and variables, model specification, estimation strategy, empirical results and conclusion. 1.1. Overview of oil and gas production in Ghana Crude oil production started in Ghana after a discovery by Kosmos Energy and Tullow oil around July, 2007 in Western Region of Ghana. However, the location was named jubilee field based on historical facts and the sudden discovery of the crude oil. Development towards jubilee field officially began in December, 2010 and was launched as a place of oil. Aside the jubilee field, another field was also discovered and named Tweneboa field (Annan, 2008). The jubilee field is located 60 km off the Coast of Ghana sharing border with the Cote d’ Ivories. Tweneboa field is also 6 km off Jubilee Field and produce a significant amount of crude oil. Jubilee Field produces an average 2 or more billion barrels of crude oil per day whiles Tweneboa field produces about 1.4 billion barrels of oil per day (Annan, 2008). These two fields are the major source of Ghana’s oil and gas production. In relation to the quality, jubilee field produces light oil indicating its high quality, hence, draws significant inflow of foreign investment into the country. Ghana currently operates one oil refinery. Thus, the Tema oil refinery which has a refinery capacity of about 45,000 barrels per day (Audit, 2019; Strategy, 2010). However, due to technical (before closure, it was operating on the average of 28,000 barrels per day) and financial challenges, the refinery is grounded and producing at zero barrel per day. Within the first quarter of production, government of Ghana was able to secure about Ghc445 million equivalents to US$ 316 million of revenue (Strategy, 2010). Regarding gas production in Ghana, full commercial production commenced in 2010 at the Jubilee field. The first commercial quantities produced was about 23 billion cubic feet (AsumaduSarkodie & Owusu, 2016). The natural gas is transmitted onshore to Atuabo natural processing facility through Kwame Nkrumah FPSO pipeline for minimal processing. After a minimal processing by Atuabo processing facility, the gas is then transported to various gas stations across the country for economic and domestic activities. The Offshore Cape Three Points (OCTP) fields produced an average of 56,000 barrels per day (b/d) which is expected to increase to 64,000 b/d in 2018. It was expected to reach a peak level of 45,000 b/ d production in 2019 but could not reach this peak. As result, the current and previous production capacity could not meet domestic gas need. Ghana import significant proportion of natural gas from Nigeria through West African Gas Pipeline (WAGP) likely due high domestic demand for gas. Due to Ghana’s failure to meet its debt repayment obligations and feedstock constraints, import of gas through WAGP has become inefficient and unreliable in nature. As a result, WAGP suspended export of natural gas to Ghana temporary in June 2006 (Asumadu-Sarkodie & Owusu, 2016). Due to the unreliable pipeline gas importation from neighboring countries, the government of Ghana turned to liquefied natural gas as a means to accommodate the increasing domestic demand for natural gas. However, the government of Ghana failed to meet the domestic demand for liquefied natural gas (LNG), likely due to lack of proper infrastructure through which the natural gas would be imported from the rest of the world. For instance, poor onshore port infrastructure delayed a deal to acquire and use Golar Tundra LNG terminal, a floating storage and regasification unit (FSRU) that was delivered to Ghana in May 2016. Additionally, Ghana received $23 million from West African Gas Limited (WAGL) via a vessel but the vessel left Ghanaian waters in 2017 due to poor onshore infrastructure facilities (Asumadu-Sarkodie & Owusu, 2016). 1.2. Theoretical framework/ empirical studies Natural resource rent is an economic profit or surplus value that accrue to firms (shareholders and government included) after accounting for cost of production (factors of production specifically) and opportunity cost of producing the resource, above the marginal cost essentially (Van der Ploeg, 2011). The returns from natural resource rent is highly unpredictable because the returns could be high (abnormal profit), low (normal profit), zero (break-even) or negative (loss), hence, Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 4 of 21 their impact on economic growth vary across different countries. The classical economists believe that natural resources are the main contributors of sustainable economic growth and development. Hence, countries endowed with abundance rich natural resources would do well in terms of economic performance (resource bless hypothesis). However, this traditional view of natural resource rent that it mitigates poverty, unemployment and income inequality to improve economic growth and development has been challenged by past empirical studies (Moradbeigi & Law, 2017; Van der Ploeg, 2011, 2006). This brought about the famous phenomenon of “resource curse hypothesis” in developing countries (Badeeb et al., 2017). The resource curse phenomenon also known as the paradox of plenty or the poverty paradox refers to inability of many resource-abundance countries, especially developing countries to fully benefit from stock of natural assets or wealth (such as fossil fuel, gas and other minerals) available freely in the environment (Atkinson & Hamilton, 2003; Fleming et al., 2015). These natural resources generate revenue for government in resource-rich countries to response effectively to the welfare needs of the citizens. After a country discovers natural resources, one might expect to see a better growth and development outcome for such a country, however, resource abundant countries tend to experience higher rates of war, authoritarianism, conflict and macroeconomic instability compared to non-resource rich countries (Paine, 2016; Wick & Bulte, 2006). For instance, since 1990 oil rich developing countries such as Niger Delta, Iraq, Angola, Libya and Democratic Republic of Congo have experienced frequent civil war as compared to non-oil-rich countries (Williams, 2011; Yoo, 2003). This is likely to hurt the other sectors of oil rich developing countries, especially the goods and service sector to hinder the economic development of these countries. The most famous example of the resource curse hypothesis is the “Dutch disease”. The Dutch disease is a phenomenon where oil, gas, agricultural commodities and other minerals booms have some potential negative effect on other sectors of economy, especially the goods and service sector which mitigate economic progress (Davis, 1995). Thus, substantial increase in natural resource revenue can impedes the performance of the other sectors of the economy via exchange rate appreciation, increasing inflation and switching capital and labour from non-oil firms to the oil firms. The Dutch diseases is well known in the literature, which was motivated by the unpleasant impact of huge natural gas discovery by the Dutch around the late 1950’s in Groningen (Papyrakis, 2017). The Dutch sought to tap this resource in an attempt to export the gas for profit. However, when the Dutch began to export the gas out of their country, it began to hurt their economy through the appreciation of domestic currency, crowding out the non-resource sectors, increase in price of non-tradable goods (housing specifically), shift of land and labour from non-oil sector to oil sector, current account deficit and substantial public debt burden (Reader, 2015). In the literature, numerous seminal empirical studies have provided empirical evidence to support the resource curse hypothesis (Adabor & Buabeng, 2021; Ahmed et al., 2016; Apergis et al., 2014; Butkiewicz & Yanikkaya, 2010; Cockx & Francken, 2016; Moradbeigi & Law, 2017; Papyrakis & Gerlagh, 2007; Van der Ploeg & Venables, 2009). Contrary, other studies found that natural resources are blessing to a country which promote economic growth (Alexeev & Conrad, 2009; Boyce & Emery, 2011; James, 2015; Lederman & Maloney, 2006; Michaels, 2011). Additionally, based on meta-analytical approach, Havranek et al. (2016) reviewed several existing literature and found that fourthy percent 2 5of the empirical researched published within the last two decades argued that natural resources are curse to a nation while twenty percent 1 5also suggested that natural resources are blessings to a country. However, fourthy percent 2 5of the total published articles found no evidence for the effect of natural resources on economic growth. The mixed results in literature can be attributed to several reasons including different methodologies employed, different means of measuring natural resources and different set of variables used as control variables. Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 5 of 21 Recent empirical studies have also focused on examining the causal relationship between natural resource and economic growth using different estimation techniques. Some studies employed the Granger causality approach to examine the causality between natural resources rent and economic growth. For instance, Quixina and Almeida (2014) investigated the causality amongst oil revenue, non-oil gross domestic product and financial development and found two main outcomes. First, the study identified unidirectional causality running from oil revenue to non-oil gross domestic product and financial development in Angola, respectively. Secondly, they also found no causal relationship between financial development and economic growth in Angola. Additionally, Apergis et al. (2014) used the same estimation strategy and found a negative reverse causality between agricultural value added and oil rent in oil-producing countries in the Middle East and North African countries. Hosseini and Tang (2014) also examined the effect of oil and non-oil export on economic growth of Iran using time series data from International Financial Statistics (IFS), World Development Indicators (WDI) and the Central Bank of Iran Republic (CBI). The results from the granger causality test revealed a unidirectional causality from oil and non-oil exports to economic growth. Among studies that used the Vector error correction model as an estimation strategy, Hamdi and Sbia (2013b) found a bidirectional causality between natural resource rent and economic growth. Their finding provided empirical evidence to support the resource blessing hypothesis. In the same vain, a study by (Hamdi & Sbia, 2013a) in Bahrain found an empirical evidence in support of the resource blessing hypothesis. Thus, the study found a unidirectional causal relationship running from abundance natural resource extraction to economic growth using the Granger causality approach. A number of empirical studies have also examined the impact of oil and gas production on economic growth in developing countries. Specifically, Acquah-andoh et al. (2018) investigated how oil and gas production affect economic growth of Ghana’s economy, using ordinary least squares (OLS) regression as estimation strategy. The study found that current petroleum production does not increase Ghana’s GDP growth. This finding is consistent with the findings of Uwakonye et al. (2006) who did a similar study in Nigeria. Cantah and Asmah (2015) also did a similar study on the relationship between crude oil price and economic growth of Ghana. The results from their study revealed that an increase in oil price had a negative and significant effect on economic growth. This results was not statistically different from that of Oduro (2017) who also examined the nexuses amongst oil consumption, oil price volatility and economic growth. Ekperiware and Olomu (2015) also employed VAR as estimation strategy to examine the effect of oil and gas production on economic growth of the agriculture sector in Nigeria. The study found a positive and significant relationship between gas production and economic growth as well as oil production and economic growth in Nigeria. Similarly, Akinlo and Apanisile (2015) also examined the relationship between oil price productivity and economic growth in oil exporting and non-oil exporting countries. The study found that oil price volatility had a positive and significant effect on economic growth for oil exporting countries. However, for non-oil producing countries, the effect was negative. Other studies also focused examining how oil and gas production affects economic development and other macroeconomic variables. For instance, Eder et al. (2018) investigated how oil and gas exploration and production affect economic development, using fixed effect, random effect and pooled ordinary least regression as estimation technique. The study found that production of oil and gas resources in the Arctic regions exert positive effect on the level of socio-economic development in these regions. This finding is consistent with that of Humbatova and Hajiyev (2019) who did a similar study in Azerbaijan. Dah and Sulemana (2010) did a similar work on how oil production affects economic development of Ghana. The study found that natural resource attracts more foreign direct investment in Ghana. Plänitz and Kuzu (2015) also investigated the benefits associated with oil and gas production in Ghana. The study administered questionnaires to managers of thirty (30) oil and gas firms in Ghana for their responses. The study found that oil and gas production enhances government’s revenue, infrastructure and fiscal development, enhances foreign exchange and creates more jobs in Ghana. These findings were consistent with the findings of Wang (2018) who did a similar study in Permian Basin. Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 6 of 21 Existing studies in developing countries mainly focused on testing the resources curse hypothesis (Adams et al., 2019; Ayelazuno, 2014; Basedau, 2005; Hammond, 2011; Sala-I-Martin & Subramanian, 2013). Relatively speaking, much less is known on testing the existence of the resource bless hypothesis in developing countries, especially in Ghana. To fill this gab in literature, we conduct a robust analysis on how oil and gas resource rent affect economic growth in Ghana where empirical evidence appears to be very scanty. In our analysis, we apply the appropriate methodology to avoid biasness and inconsistency in our estimates/results/findings. Although our empirical findings are for Ghana, our findings would be relevance for developing countries with similar socioeconomic and demographic setting like Ghana. This shows that our findings/results are significant beyond Ghana’s boundaries. The current study also add to the scant literature on the resource bless hypothesis by using recent data (2010–2019) to analyze the effect of oil and gas resource rent on economic growth of Ghana in a more contemporary era. 2. Data and variables The study unitized monthly time series data spanning from 2010 to 2019 from two different sources. Specifically, we obtained data on gross domestic product, foreign direct investment, gas resource rent and oil resource rent from world development indicators (WDI) of the World-Bank (2019) and data on lending rate and exchange rate were obtained from Bank of Ghana (2019). The study used 2010 as a starting point due to the fact that 2010 is the period where Ghana began its first commercial extraction of crude oil and natural gas in significant quantities (Gyampo, 2011). The description and definition of all the variables used in the study are presented in Table 1. 3. Model specification The study followed previous studies (Adabor & Buabeng, 2020; Adabor et al., 2020; Buabeng et al., 2019a, 2019b; Cantah & Asmah, 2015) and specify the effect of natural resource (oil and gas resource rent specifically) on economic growth in a functional form as follows: GDP ¼f OR;GR;FDI;EXCR;LR;ð Þ (1) Where GDP is gross domestic product, OR is oil resource rent, GR is gas resource rent, FDI is foreign direct investment, EXCR is exchange rate and LR lending rate. The estimable form of equation (1) is thus specified in equation (2). lnGDPt¼β0þβ1lnORtþβ2lnGRtþβ3lnFDItþβ4lnEXCRtþβ5lnLRtþμt(2) Where the variables GDP;OR;GR;LR;FDI and EXCR are explained earlier in equation (1). β0 is the constant term and μt is the disturbance term. The parameters βis (i = 1, 2 . . . . . ., 5) are the coefficient of the respective variables. 4. Estimation strategy The ARDL model by Pesaran et al. (2001) assumes a linear relation between the dependent and independents variables. The ARDL model does not account for the asymmetries in the movement of the independent variables. Thus, ARDL assumes that natural resource rent (oil and gas resource rent) changes has symmetric or linear effect on economic growth. However, due to the potential asymmetric relationship between natural resource rent (oil and gas resource rent) and economic growth, the study adopted the nonlinear ARDL model (Shin et al., 2014). Thus, we estimated the parameters in equation (2) with nonlinear autoregressive distributed lags model (NARDL). To do this, we first carried out a test for stationarity among all the variables to verify if the variables are stationary or not. We employed the Augmented Dickey-fuller (ADF) and the Phillips-Perron (PP) test proposed by Dickey and Fuller (1979) and Phillips and Perron (1988), respectively, to test for the stationarity among all the variables. This test aimed at determining whether the series are stationary or non-stationary (have unit roots or not) since using non-stationary time series data Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 7 of 21 make adequate revenue from gas production in Ghana since substantial percent of gas used in Ghana is imported from foreign countries. Therefore, significant proportion of revenue made from gas production are not spent or invested in Ghana’s economy. This does not promote economic growth. Overall, since our NARDL estimates suggests that revenue from natural gas resources extraction exerts an insignificant positive effect on economic growth while loss incurred out of gas resource extraction exerts significant negative effect on economic growth, implying that gas resource extraction in Ghana supports the resource curse hypothesis. Turning to the control variables, the coefficients of exchange rate, foreign direct investment and lending rate exert a significant negative, positive and negative effect on economic growth of Ghana, respectively. For exchange rate, one percent depreciation of Ghana cedis causes approximately 0.314 percent decrease in economic growth (gross domestic product), reflecting the weakness of Ghana cedis. The economic implication of this result is that the depreciation of the Ghana cedis decreases the importation of foreign goods and raw materials needed for local production as these goods becomes relatively expensive. Decrease in input (raw materials) needed for production would decrease output produced by firms thereby reducing output on the local market, decreasing total gross domestic product. This result is comparable to that of Hosseini and Tang (2014). Regarding foreign direct investment, one percent increase in foreign direct investment generates approximately 0.246% increase in economic growth of Ghana, all things being equal. Foreign direct investment inflow increases infrastructure development including expansion and extending of roads networks to rural areas, increase in public health coverage and extension of electricity supply to rural areas of Ghana. Additionally, it tends to leads to expansion of local exiting firms and setting up of new multinational firms to promote economic growth. Lastly, for lending rate, the negative coefficient of −0.366 implies that one percent increase in lending rate causes 0.366 percent decrease in economic growth of Ghana in the long-run, all else equal. The economic implication of this finding is that higher lending rate increase the cost of borrowing from commercial banks which reduces firm’s investment and consumer’s disposable income. This limits firm’s ability to expand their scale of production and reduces consumer’s purchasing power thereby reducing total gross domestic product of Ghana. Our finding is similar to Njeru (2013) empirical results in Nigeria. The next section provides the short-run estimates using the NARDL. Table 7. Estimated short-run results Variable Coefficient Std. Error T-Statistic lnORþ0.3945** 0.0550 7.1727 lnOR−0.2965 0.0669 −4.4319 lnGRþ−0.5565 0.0559 −9.9553 lnGR0.4488** 0.0641 7.0015 lnEXR −0.4100*** 0.0719 −5.7024 lnFDI 0.1608*** 0.0199 8.0804 lnLR −0.3169*** 0.0498 −6.3634 ECM (−1) −0.4943 *** 0.0718 −6.8844 R-square 0.8938 Adjusted R-square 0.6693 Durbin-Waston test 3.0289 F-statistic 6.7175 Prob (F-statistics) 0.0013 Note: The dependent variable is gross domestic product (GDP) and the variables of interest are oil resource rent (OR) and gas resource rent (GR). Our control variables include exchange rate, foreign direct investment and lending rate.lnORþrepresents revenue made out of oil resource extraction while ORdenotes incurring cost/losses out of oil resource extraction. The symbols for gas resource rent (lnGRþandlnGR) are interpreted in the same manner. *** and ** represent significance at 1 and 5%, respectively. Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 14 of 21 The short-run results were not different from that of the long-run regarding their relationship with the dependent variable as shown in Table 7. In the short-run, we find that oil and gas resource rent have an asymmetric effect on economic growth of Ghana. Thus, the coefficient of lnORþandlnORas well as lnGRþand lnGRhad different sign and size, confirming the asymmetric effect of oil and gas resource rent on economic growth. Specifically, our NARDL estimates suggest that income/profit from oil resource rent exerts a significant and positive effect on gross domestic product (lnGDP) while loss incurred out of oil extraction exerts an insignificant and negative effect on economic growth of Ghana. For gas resources rent, an increase in income made out of gas resource rent exerts a positive and insignificant impact on economic growth of Ghana while loss incurred from gas resources extraction exerts a negative and significant effect on economic growth of Ghana at 5% level of significance. Regarding the control variables, they were also consistent with the long run estimates in terms of their signs and significant level. The coefficient of foreign direct investment suggests that it exerts positive and statically significant effect on economic growth at one percent level of significance. Specifically, one percent increase in foreign direct investment results in 0.16% increase in economic growth, holding all other variables constant. For exchange rate, it also had a negative and significant relationship with economic growth of Ghana. Thus, when the country’s currency experience one percent depreciation, economic growth would decrease by 0.41 percent, all else equal. The decrease in economic growth is likely due to the fact that depreciation of the currency make importation of raw materials and machinery very expensive, decreasing workers productivity. Lastly, the short-run NARDL estimates revealed that lending rate had a negative and statistically significant relationship with economic growth. Specifically, when lending rate increase by one percent, it generates 0.32% decrease in economic growth at 1 percent level of significance, all else being equal. Economically, high lending rate increases cost of borrowing which decreases investment and consumption thereby reducing economic growth. The error correction term [ECM (−1)] illustrates the speed of adjustment which is negative and significant in our case confirming the existence of a long-run relationship between the dependent and the independent variables. The coefficient of the ECM is −0.4943 which suggests that cointegration and stability exist among oil resource rent, gas resource rent, exchange rate, foreign direct investment, lending rate and economic growth in the model. Thus, there is one percent significance level of stability in the model and equilibrium in the long-run would adjust by approximately 49% annually after any short-run shock. Table 8 shows that the estimated NARDL model is free from econometric and statistical problems since all the probability values are greater than 0.05. Also the CUSUM and CUSUMQ graph (see figure 1 in the appendix) revealed that gross domestic product over the sample period is stable. This is so because the plots of the Cumulative sum and Cumulative sum of square (CUSUM and CUSUMQ) lie within the 5% critical bound. Table 8. Model diagnostic and reliability test results Diagnostic test Test statistics Prob. value Normality 0.1330 0.5880 Serial correlation 1.0394 0.3969 Heteroskedasticity 1.7095 0.1950 Functional form 0.4897 0.825 CUSUM Stable CUSUMQ Stable Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 15 of 21 9. Limitation and areas for future research The major limitation of our study is the inability of the study to unpack the channels through which natural resources rent affects economic growth. Although our study focused on examining the direct effect of oil and gas resource rent on economic growth, we believe that there might be some potential pathways through which oil and gas resource rent affect economic growth. Hence, future researchers should focus on applying the appropriate methodology to examine the pathways through which oil and gas resource rent affects economic growth to aid in implementation and formulation sound policy for the economic progress of developing countries. Some potential channels might include institutional quality, financial development, labour productivity and others. Secondly, our study is a specific country case study which somewhat limit our findings. Although our study has yielded interesting findings, using panel model such as fixed effect model that account for specific error term and in country or regional differences such as differences in technological advancement, differences in production/supply capacity, differences in governance and institutional quality and among others might have outstanding results for the relationship between natural resource rent (oil and gas resource rent specifically) and economic growth. Hence, future studies must focus on undertaking a cross county studies in this regard. 10. Conclusions and policy recommendations While a large body of literature presents evidence that oil resource extraction hurts developing countries (resource curse hypothesis), in this study, we found that oil resource rent spurs economic growth, supporting the resource blessing hypothesis. However, gas resource rent rather decreases economic growth, providing evidence in support of the resource curse hypothesis. These results are robust to suite of diagnostic and reliability checks. Similar conclusion can be drawn for other developing countries with similar socioeconomic and demographic setting like Ghana. We used monthly time series data to examine the effects oil and gas resource rent on economic growth of Ghana, where empirical evidence appears to be relatively scanty. We used NARDL model as estimation strategy to account for the asymmetries in oil and gas resource rent, controlling for other relevant macroeconomic indicators that influences economic growth. For the macroeconomic controls variables, our findings indicate that lending rate and exchange rate, clearly affect economic growth of Ghana. Given the negative relationship between lending rate and economic growth, the study recommends that central bank should closely monitor and collaborate with commercial banks to produce an effective strategy of reducing and stabilizing the lending rate over a long period of time to motivate firms, individuals and other institutions to borrow from banks in Ghana, especially commercial banks. This would increase investment to promote economic growth. For exchange rate, the study revealed that it exerts a negative impact on economic growth. Following this result from the study, we recommend that government, monetary authorities and other private institutions must work together to design policies that aim at stabilizing exchange rate over a long period of time. Overall, our empirical findings provided evidence that natural resources rent (oil and gas resource specifically) affect economic growth asymmetrically. Thus, both oil and gas resource rents exert asymmetric effect on economic growth of Ghana. However, natural gas resource extraction is not considered as a significant positive contributor to economic growth of Ghana likely due to high volume of gas importation. These results suggest that currently it would be more beneficial for investment companies and firms to channel more resources and effort to expand oil resource firms than gas resource firms. This would increase the production and extraction of oil resources compared to gas resources which contribute significantly to economic growth. Thus, to promote economic growth of developing countries with similar socioeconomic and demographic setting like Ghana, firms and investors should channel enough resource and effort to extract more oil resources than gas resources. However, longterm policy interventions by government and investors should target establishing both domestic oil and gas resource firms to promote economic growth in the long run. Finally, Adabor & Buabeng, Cogent Economics & Finance (2021), 9: 1971355 https://doi.org/10.1080/23322039.2021.1971355 Page 16 of 21 government and monetary authorities should promote policies that attract foreign direct investment inflow in Ghana while taming inflation and lending rate towards growth enhancing targets. Our strength cometh from God . . . . . . . . . . Acknowledgements This manuscript benefited from the valuable comments of the two anonymous reviewers and the editor. We thank these anonymous reviewers and the editor for their time and effort. World Bank. (2020). 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