Association between Natural Resources and Government Debt a Cross-Country Study

Natural resources and government debt are integral to sustainable development. This paper presents an empirical study of the direct impact of natural resources on government debt, as well as the heterogeneity and impact mechanism. With cross-country panel data of 151 countries and regions from 1996 to 2015, this paper uses a fixed-effect empirical model and constructs the instrumental variables to deal with issues of endogeneity. We find that natural resource endowment significantly reduces government debt, and the effect is stronger for countries with lower levels of economic or political development. The mechanism analysis shows that natural resources significantly increase fiscal revenues but do not affect fiscal expenditures. Furthermore, natural resources significantly promote the output of upstream and downstream industries, as well as consumer-goods industries. This paper helps us better understand the relationship and the impact mechanism between natural resources and government debt and provides important policy implications for promoting the sustainable development of the world economy