Unraveling Ghana’s Resource Curse Hypothesis: Analyzing Natural Resources and Economic Growth with a Focus on Oil Exploration

Round 1

Reviewer 1 Report

Several enhancements need to be undertaken before this paper becomes suitable for publication in the journal "Economies."

1.       While the author presents the Abstract, answer the questions carefully: What problem did you study, and why is it important? What methods did you use? What were your main results? And what conclusions can you draw from your results? Please make your abstract with more specific and quantitative results while it suits broader audiences. Frankly, the current background is too long to follow, and the study results provided in the abstract are confusing. It is suggested that the author can refine this part.

2.       It's important to emphasize the unique contribution of your study. While the significance of the proposed research is briefly discussed in lines 103-130, it's crucial to explicitly highlight how your study stands out from previous similar studies. Consider elaborating on the specific aspects or dimensions that differentiate your study. How does your research address gaps that haven't been explored before? How might the empirical findings of your study lead to practical applications or theoretical advancements? This will help establish the importance of your work in the context of existing literature.

3.       Line 225-227 introduces a hypothesis to be tested, but the results of hypothesis testing need to be thoroughly discussed in the discussion section. Ensure that you present the findings related to the hypothesis, along with the statistical analyses or evidence that supports or refutes it. Interpret the results in the context of your research question and the existing literature. Discuss any implications, insights, or unexpected outcomes that emerged from the hypothesis testing.

4.       To make the literature review more engaging and relevant to the study, connect the discussion of the Ghanaian economy to the specific focus of your research. Explain how the background information you've provided is directly related to the variables or concepts you're investigating. For instance, if your study explores the relationship between economic growth and a particular factor, clarify how the Ghanaian economic context sets the stage for your investigation. This will help readers understand the logical progression from the general context to the specific focus of your study.

5.       Ensure that the numbering issue on lines 500 and 514 is resolved. It's a minor formatting detail, but such errors can distract readers and undermine the overall professionalism of your paper.

6.       Address the messiness in lines 570-573. It's unclear what the specific issue is from the information provided. If it's a formatting or typographical issue, make sure to correct it for clarity and coherence.

7.       Including a section on limitations and future research is crucial for enhancing the overall quality of your paper. Identify and discuss the limitations of your study in terms of methodology, data, scope, or any other relevant factors. This shows that you're aware of the potential weaknesses in your research. Additionally, suggest avenues for future research that could build upon your findings or address the limitations. This adds value to your study and guides other researchers in exploring related topics.

The English language quality is quite satisfactory; extensive revisions are unnecessary. Only minor adjustments in typography and grammar are required.

Author Response

While the author presents the Abstract, answer the questions carefully: What problem did you study, and why is it important?  

This study examines the intricate relationship between natural resource abundance, with a specific focus on oil production, and its impact on economic growth in Ghana. Through the application of the robust Fully Modified OLS methodology and using data span from 1960 - 2021 the research underscores the essential inclusion of oil as a significant variable in comprehending economic growth dynamics

What methods did you use?

Through the application of the robust Fully Modified OLS methodology and using data span from 1960 - 2021 the research underscores the essential inclusion of oil as a significant variable in comprehending economic growth dynamics

What were your main results?

Contrary to traditional resource curse theories, the study unveils a positive nexus between oil production and economic growth, particularly within a comprehensive variable framework. This finding challenges simplistic resource curse notions and underscores the need for a holistic economic perspective

And what conclusions can you draw from your results?

Importantly, the inclusion of oil as a pivotal variable is well-justified by its tangible contributions to economic growth. The observed positive impacts emphasize the benefits of harnessing oil resources while maintaining a holistic view of the broader economic context

Please make your abstract with more specific and quantitative results while it suits broader audiences. .

Overall, the results show that the impact of oil production on economic growth is sensitive to the inclusion or exclusion of other variables in the model. In Model 1, where all variables are included, oil production has a significant positive (0.0112**) impact on growth. However, in Model 2, where either agriculture-related or non-agriculture-related measures are excluded, the impact of oil production becomes statistically insignificant (0.0005) or even negative in Model 3 (-0.0124).

 Frankly, the current background is too long to follow, and the study results provided in the abstract are confusing. It is suggested that the author can refine this part.

My background information is two pages. Please be clear on what is wrong with the background and how I can improve upon it

It's important to emphasize the unique contribution of your study. While the significance of the proposed research is briefly discussed in lines 103-130, it's crucial to explicitly highlight how your study stands out from previous similar studies.

The inclusion of oil as an important variable in the case Ghana is the major difference between this study and other studies.  

Consider elaborating on the specific aspects or dimensions that differentiate your study. How does your research address gaps that haven't been explored before? How might the empirical findings of your study lead to practical applications or theoretical advancements? This will help establish the importance of your work in the context of existing literature.

Firstly, by including the oil variable in the analysis, this research provides a more comprehensive and accurate assessment of the resource curse hypothesis in Ghana. It allows for a deeper understanding of how natural resources, particularly oil, affect economic growth patterns and whether Ghana has experienced any adverse effects related to the resource curse phenomenon. Secondly, the study provides valuable insights into how the discovery of oil reserves can influence economic growth dynamics. This information is critical for policymakers, as oil discoveries can have significant implications for the country's economic development and sustainability. Thirdly, some previous studies on Ghana's resource curse have yielded contradictory results. By including the oil variable and extending the period to 2021, this research attempts to address potential gaps and inconsistencies in earlier findings, contributing to a more robust and cohesive body of knowledge (Miles, 2017). Again, understanding the relationship between natural resources, particularly oil, and economic growth in Ghana can have significant policy implications. The findings from this study can assist policymakers in formulating effective strategies for sustainable resource management, economic diversification, and mitigating any potential adverse effects of resource dependence. Futhurmore, the inclusion of the oil variable and the extension of the study period add to the existing literature on the resource curse hypothesis and its application to Ghana. This research contributes to the knowledge base by presenting updated and relevant findings that consider the country's specific economic conditions and developments over time. Also, with a focus on data up to 2021 (Schweinsberg et al., 2021), this study can aid in long-term economic planning and decision-making. Policymakers and stakeholders can use the insights to anticipate future trends, assess the sustainability of resource-based growth, and develop appropriate policies to steer the economy towards resilience and stability. Lastly, while the research centers on Ghana, the findings may have implications for other resource-rich economies facing similar challenges and opportunities. The lessons learned from Ghana can inform policymakers and researchers in other countries with substantial natural resource endowments.

3. Line 225-227 introduces a hypothesis to be tested, but the results of hypothesis testing need to be thoroughly discussed in the discussion section..

Research question(s) has been modified

H₀: Exploration of oil affect the resource curse hypothesis position in the case of Ghana?

H₁: Exploration of oil affect the resource curse hypothesis position in the case of Ghana?

Hypothesis has been modified

Ensure that you present the findings related to the hypothesis, along with the statistical analyses or evidence that supports or refutes it. Interpret the results in the context of your research question and the existing literature.

This finding does not agree with [87–89], but agrees with [43].

Discuss any implications, insights, or unexpected outcomes that emerged from the hypothesis testing

SEE SECTION   4.3. HYPOTHESIS TESTING -  Further explanations using Principal Component Analysis

.       To make the literature review more engaging and relevant to the study, connect the discussion of the Ghanaian economy to the specific focus of your research. Explain how the background information you've provided is directly related to the variables or concepts you're investigating. For instance, if your study explores the relationship between economic growth and a particular factor, clarify how the Ghanaian economic context sets the stage for your investigation. This will help readers understand the logical progression from the general context to the specific focus of your study.

This historical context illuminates the nuances and resilience of Ghana's economy, providing insights into its ability to navigate diverse economic conditions. Importantly, by juxtaposing these historical insights with our research focus, we aim to uncover the role of specific variables in steering economic growth within the Ghanaian context. This contextual understanding enables us to appreciate the potential impact of these variables, be it capital formation, resource abundance, or other determinants, on Ghana's economic performance. The irony of higher per capita GDP growth in the pre-independence era compared to later decades, despite population growth, raises questions about the effectiveness of growth strategies and policies employed during those times. This comparative analysis serves as a stepping stone for our investigation into the determinants of economic growth and their changing roles over time. As we delve into specific factors that have influenced Ghana's economic growth trajectory, including their positive or negative effects, the historical context informs our understanding of potential contributing factors. For instance, the robust growth achieved in certain sectors during the initial years of independence prompts a closer examination of policies that facilitated such expansion and whether similar strategies can be harnessed for sustainable growth in the present.

In essence, the Ghanaian economic backdrop offered in this literature review serves as a bridge from historical trends to contemporary research. By contextualizing the general trends within the specific focus of our study, we aim to unravel the complexities of economic growth in Ghana and offer insights that can guide policy decisions and development strategies for the future.

5. Ensure that the numbering issue on lines 500 and 514 is resolved. It's a minor formatting detail, but such errors can distract readers and undermine the overall professionalism of your paper.

The version I downloaded didn’t have line numbers so that would be very difficult. May be the page or section would be more appropriate for me

.       Including a section on limitations and future research is crucial for enhancing the overall quality of your paper. Identify and discuss the limitations of your study in terms of methodology, data, scope, or any other relevant factors. This shows that you're aware of the potential weaknesses in your research. Additionally, suggest avenues for future research that could build upon your findings or address the limitations. This adds value to your study and guides other researchers in exploring related topics.

The main limitations of the study include data limitations that is the availability and quality of historical data, especially for the period before 1960, may present constraints on the accuracy and completeness of our analysis, methodological imitations: while the Fully Modified Ordinary Least Square (FMOLS) regression approach was employed to estimate relationships between variables, it's important to acknowledge that no model can capture all complexities of real-world dynamics. The chosen model may have its own assumptions and limitations that could affect the robustness of our conclusions and generalizability.

Future studies could benefit from efforts to enhance the availability and accuracy of historical data, especially for the pre-1960 period. Collaborations with archival institutions, data digitization initiatives, and meticulous data validation procedures could contribute to more comprehensive and reliable datasets. Future research could consider a broader array of variables, including social, political, and institutional factors, to provide a more comprehensive understanding of the drivers of economic growth. This might involve exploring factors such as governance quality, technological advancements, and income distribution.

All these responses have been incorporated in the main work with the same colour code (Yellow)

Author Response File: Author Response.pdf

Reviewer 2 Report

Introduction:

1. The time span covered in figure # 01 should be extended to 2004 as the interpretation claims a higher correlation till 2004.

2. Line number 56 to 62: Mention few studies in the same vein and have overlooked the role of oil as natural resource in economic growth.

Literature Review:

1. Figure 2 shows the evolution timeline of the resource curse hypothesis. Authors are advised to write a little about every stage of evolution mapped in figure 2.

2. Line number 172 to 176: Cite at least one study for each proxy used for natural resource just like control variables as mentioned from line number 177 to 182.

3. Line number 182: Cite the reference for spending on education as control variable.

4. Line number 197 to 208: Mentioned literature is not the criticism on natural resource dependence and abundance and growth hypothesis but the variability in the findings of empirical evidence in existing body of literature.

5. Line number 207 and 208: Cite the reference for 6th point.

6. Line number 211: It says, “the exploration of oil in commercial quantities started in 2009” but the reference mentioned in line number 91 to 92, “Ghana's economy experienced significant changes after the discovery of oil in commercial quantities in 2007” (ISSER, 2010).

Please revisit below the reference:

ISSER. (2010). State of the Ghanaian Economy.

7. The same discrepancy mentioned above is found in line number 215.

8. Figure # 3 should cover the period earlier than 1960 as in interpretation year 1957 and 1958 are mentioned in line number 240.

Methodology:

1. Line number 388 and 389, says that “(Adelman & Morris, 1978) suggested computing a composite index from four broad categories”. Please mention all four categories.

2. Line number 402: data span is mentioned from 1960 to 2022 unlike the abstract where the data span of this study was mentioned as 1960 to 2021. Please mention the correct data span.

3. Descriptive statistics and Correlation metrics tests should be employed in the study including VIF test for the presence of multicollinearity.

4. Add a table showing the full name of the variable and its short form used in the study.

5. Line number 442 to 495: Interpretation of Table 3 (FMOLS Regression Results) is advised to be framed under sub-headings covering each natural resource separately and its impact in every model.

6. Line number 449 to 453: Reference from previous literature is missing for the finding of total Arable Land.

7. Line number 453 to 456: Justification of the statement that “the insignificant impact of Arable land in model 1 is due to illegal mining” can be improved.

8. Line number 500 and 514: Number formatting should 4.2.1 and 4.2.2 on sub-headings (if authors decide to work on point number 5 then numbers of these heading will be adjusted accordingly).

Conclusion:

1. Line number 653: Time span of the study is not aligned with the period mentioned in abstract.

2. Line number 672 to 683: Policy recommendations are grouped into short-term, medium-term, and long-term period but the employed statistical technique did not examine the impact of natural resources in short-run and long-run separately.

Author Response

Comment 2

Introduction:

1. The time span covered in figure # 01 should be extended to 2004 as the interpretation claims a higher correlation till 2004.

The axis showing the year reads as 1965, 1970, 1975, 1980, 1985, 1990, 1995, 2000. 2005, 2010, 2015, 2020. Therefore 2004 is between 2000 and 2005

2. Line number 56 to 62: Mention few studies in the same vein and have overlooked the role of oil as natural resource in economic growth.

Adu, G. (2012). Studies on economic growth and inflation (Vol. 2012).

Adabor, O. (2023). Averting the “resource curse phenomenon” through government effectiveness. Evidence from Ghana’s natural gas production. Management of Environmental Quality: An International Journal, 34(1), 159–176

Literature Review:

1. Figure 2 shows the evolution timeline of the resource curse hypothesis. Authors are advised to write a little about every stage of evolution mapped in figure 2.

Adam Smith argued that natural resources, in themselves, have the potential to contribute positively to economic development. He discussed the concept of "land" as one of the three factors of production, alongside labor and capital. In his view, land represented not only physical space but also the natural resources found within it, such as minerals, forests, and fertile soil. Smith believed that a nation's wealth could be enhanced by effectively utilizing its natural resources. He emphasized the importance of efficient resource allocation and specialization of labor to increase productivity. When individuals and businesses could harness and utilize natural resources efficiently, it could lead to economic growth and development. However, it's important to note that Smith's perspective was not an endorsement of resource extraction at any cost. He also emphasized the significance of sound institutions, free markets, and policies that promote competition and protect property rights. In his view, these factors were essential for translating the potential wealth from natural resources into actual economic development. In summary, Adam Smith's work laid the foundation for understanding how natural resources can play a positive role in economic development, but he also emphasized the importance of good governance and market mechanisms to ensure that the benefits of these resources are realized.

The Dutch Disease theory, introduced by Corden and Neary in 1982, explains the economic challenges that can arise from a sudden resource boom. When a country experiences a surge in resource exports, its currency tends to appreciate, making other exports less competitive. This can hinder economic diversification and create vulnerability to global commodity price fluctuations. Income inequality may also increase. To address these issues, policymakers often implement strategies like diversifying the economy and managing windfall revenues in sovereign wealth funds. The theory underscores the need for careful management of resource-driven growth to ensure long-term economic stability and development.

In 1988, Jeffrey Sachs and Andrew Warner introduced the Resource Curse thesis, highlighting that countries rich in natural resources might face economic challenges rather than benefits. This theory emphasizes: resource abundance, economic challenges of resource rich countries, dutch disease, dependency and institutional weakness.

The term was actually coined before 1993, and it has been attributed to different scholars. While there's some debate about who first used the term, it was popularized by the publication of academic research in the 1990s. One prominent early use of the term "resource curse" is often attributed to the economist Richard Auty. Auty's work in the late 1980s and early 1990s, particularly his book "Sustaining Development in Mineral Economies: The Resource Curse Thesis," laid the foundation for the concept. Another influential scholar in the development of the resource curse concept is Jeffrey Sachs, who, along with Andrew Warner, published the paper "Natural Resource Abundance and Economic Growth" in 1995. This research played a significant role in bringing the concept to broader attention in the academic and policy communities.

The paper by Sachs and Warner (1995) titled "Natural Resource Abundance and Economic Growth", played a significant role in providing empirical evidence for the adverse effects of resource dependence. In the study, Sachs and Warner examined a large dataset of countries and analyzed the relationship between natural resource abundance and economic growth. They found that countries heavily dependent on natural resource exports tended to have slower economic growth compared to countries with more diversified economies. This finding provided empirical support for the idea that an overreliance on resource exports could hinder overall economic development. This paper also highlighted the potential mechanisms through which resource dependence could negatively impact economic growth, including issues like the Dutch Disease effect, volatile commodity prices, and governance challenges. Sachs and Warner's research played a crucial role in bringing the resource curse concept to the forefront of academic and policy discussions, and their empirical evidence has informed subsequent studies and policy recommendations for resource-rich countries.

Thorvaldur Gylfason's research, particularly in 2001, focused on the link between natural resource dependence and economic growth. The study emphasized several key points including resource dependence and growth, diversification, institutional factors, social and political implications. Gylfason's work has significantly contributed to our understanding of the challenges and opportunities faced by resource-dependent nations and have influenced policy discussions in these contexts.

2. Line number 172 to 176: Cite at least one study for each proxy used for natural resource just like control variables as mentioned from line number 177 to 182.

As a way to measure the impact of natural resources on growth, the commonly used proxy for natural resources dependence and natural resources abundance by researchers are Primary exports over GDP [34], Rents from natural resources over GDP [35], Share of natural capital in national wealth, Share of mineral exports in total exports [36], Total natural capital and mineral resource assets in US $ per capita [37] and Subsoil wealth [23].

3. Line number 182: Cite the reference for spending on education as control variable.

and spending on education[45] .

4. Line number 197 to 208: Mentioned literature is not the criticism on natural resource dependence and abundance and growth hypothesis but the variability in the findings of empirical evidence in existing body of literature.

Variability can indeed lead to criticism in various contexts. The impact of variability on criticism depends on the specific situation and how it is perceived by individuals or groups. That is the more reason why I choose the word criticism instead of variability.

5. Line number 207 and 208: Cite the reference for 6th point.

(6) economic growth is not affected by resource dependence and resource abundance has a positive effect on growth and institutional quality [61].

6. Line number 211: It says, “the exploration of oil in commercial quantities started in 2009” but the reference mentioned in line number 91 to 92, “Ghana's economy experienced significant changes after the discovery of oil in commercial quantities in 2007” (ISSER, 2010).

The exploration of oil in commercial quantities started in 2007. Line 211 has been corrected

Please revisit below the reference:

ISSER. (2010). State of the Ghanaian Economy. – Reviewed

7. The same discrepancy mentioned above is found in line number 215.

The discovery of oil in commercial quantities in Ghana in 2007 raised hopes of economic growth

8. Figure # 3 should cover the period earlier than 1960 as in interpretation year 1957 and 1958 are mentioned in line number 240.

The Scale of the graph chosen cannot display the stated years as it is a five year interval

Methodology:

1. Line number 388 and 389, says that “(Adelman & Morris, 1978) suggested computing a composite index from four broad categories”. Please mention all four categories.
2. Line number 402: data span is mentioned from 1960 to 2022 unlike the abstract where the data span of this study was mentioned as 1960 to 2021. Please mention the correct data span.

Data for the study was from 1960 to 2021. Corrected

3. Descriptive statistics and Correlation metrics tests should be employed in the study including VIF test for the presence of multicollinearity.

Descriptive Analysis,

Before proceeding with the analysis, table A.1in the appendix shows the full name of variable and its short form. This is done for easy reference. Table A.2 shows the summary statistics while table A.3 shows the correlation matrix. The variable of interest lnOil has a mean of approximately 10.308 with a standard deviation of 0.582. It has a relatively small spread, as indicated by the narrow range between the minimum (9.1) and maximum (11.385) values. The skewness is positive (0.122), suggesting a slight rightward skew in the data. The kurtosis (2.141) indicates that the distribution has relatively heavier tails compared to a normal distribution. For FMOLS, these statistics suggest that lnOil may have a relatively stable and normally distributed pattern. With lnGold a mean of approximately 14.63 and a standard deviation of 0.495, means it has a moderate spread. The skewness is negative (-0.877), indicating a leftward skew in the data. The kurtosis (3.931) suggests heavy tails and potential outliers. For FMOLS, these statistics suggest that lnGold may have a distribution that deviates from normality and could require further examination for potential outliers. The variable lnDiam has a mean of approximately 12.992 and a relatively high standard deviation of 1.067, indicating a wider spread. The skewness is negative (-1.282), suggesting a leftward skew, and the kurtosis (3.887) indicates heavy-tailedness. Similar to lnGold, lnDiam may deviate from normality. With lnBaux a mean of approximately 13.335 and a standard deviation of 0.407, indicate it has a narrower spread. The skewness is positive (0.357), and the kurtosis (2.056) suggests moderately heavy tails. For FMOLS, these statistics indicate that lnBaux may have a relatively stable and normally distributed pattern. This variable (lnMang) has a mean of approximately 13.77 and a standard deviation of 0.908, indicating a wider spread. The skewness is slightly negative (-0.222), and the kurtosis (2.174) suggests moderate tail heaviness. lnMang may require examination for potential outliers in FMOLS. lnCocoa has a mean of approximately 13.316 and a standard deviation of 0.472. Its skewness is close to zero (0.108), and the kurtosis (2.146) suggests a moderately heavy-tailed distribution. lnCocoa may be relatively normally distributed and suitable for FMOLS. lnAgric a mean of approximately 3.607 and a standard deviation of 0.343. It has a relatively narrow spread. The skewness is negative (-0.73), indicating a leftward skew, and the kurtosis (2.563) suggests moderately heavy tails. For FMOLS, these statistics suggest that lnAgric may deviate from normality and require further examination.

Correlation Matrix Test

Table A3: Correlation Matrix

 VIF test for Multicollienarity

4. Add a table showing the full name of the variable and its short form used in the study.
5. Table 1: Full name of variable and short form as used in the analysis

                                    Source: Author’s Construct, 2023

6. Line number 442 to 495: Interpretation of Table 3 (FMOLS Regression Results) is advised to be framed under sub-headings covering each natural resource separately and its impact in every model.

I actually think going by this suggestion will make the presentation look very complex. There would too many sub-headings

7. Line number 449 to 453: Reference from previous literature is missing for the finding of total Arable Land.

Total arable land (lnarable) is statistically significant in models 2 and 4. Normally, researchers are not likely to think of arable land as natural resource. The concentration has been on mineral resources, but this study has proved otherwise [84,85]

8. Line number 453 to 456: Justification of the statement that “the insignificant impact of Arable land in model 1 is due to illegal mining” can be improved.

Illegal mining, also known as artisanal and small-scale mining (ASM), can significantly diminish the productivity of arable land through various means. These activities lead to land degradation, compromising soil fertility and structure, and often introducing harmful pollutants like mercury and cyanide. Deforestation associated with illegal mining contributes to soil erosion and reduced land capacity for crop cultivation. Miners encroach upon agricultural lands, displacing farmers and disrupting farming activities. Water resources, crucial for irrigation, are often depleted or contaminated. Conflicts over mining resources can create insecurity, discouraging farming and displacing communities. Additionally, the loss of biodiversity and the regulatory challenges associated with illegal mining further exacerbate its negative impacts on arable land, posing a substantial threat to food security and local livelihoods in affected areas.

8. Line number 500 and 514: Number formatting should 4.2.1 and 4.2.2 on sub-headings (if authors decide to work on point number 5 then numbers of these heading will be adjusted accordingly).

The insertion of other sub-sections would alter these headings as well

Conclusion:

1. Line number 653: Time span of the study is not aligned with the period mentioned in abstract.

In conclusion, this study offers a comprehensive exploration of the intricate interplay between natural resource abundance and economic growth in Ghana, with a particular focus on the role of oil production using data from 1960 to 2021.

2. Line number 672 to 683: Policy recommendations are grouped into short-term, medium-term, and long-term period but the employed statistical technique did not examine the impact of natural resources in short-run and long-run separately.

These recommendations are inferred from the results. Even though these results do not explicitly show the terms, it has been inferred. But the wordings of short-term, medium term and long term will be removed if you insist ;

Author Response File: Author Response.pdf