Revisiting industrialization in Asia's middle-income economies: The interplay of natural resources and institutional quality

Abstract

This study examines the impact of natural resource dependence and institutional quality on manufacturing value added in middle-income Asian countries. We analyze panel data from 20 countries spanning 2006 to 2021 using the panel autoregressive distributed lag (ARDL) method to assess short- and long-term relationships. The findings indicate that, in the short term, natural resource rents do not significantly influence manufacturing value added, implying that resource dependence does not immediately affect industrial performance. In contrast, stronger control of corruption and greater trade openness have positive and significant effects on manufacturing development. Over the long term, the results support the resource curse theory, as natural resource rents have a significant negative impact on manufacturing value added. Measures of institutional quality, including control of corruption, political stability, and voice and accountability, also demonstrate negative long-term effects on manufacturing performance. These outcomes underscore the necessity for robust policy interventions in developing economies to mitigate the adverse consequences of heavy reliance on natural resources. Strengthening accountability, regulatory certainty, legal enforcement, and transparent governance is essential to attract investment and foster investor confidence in the industrial sector.