The issue of the governance-natural resources and structural transformation nexus has been the focus of considerable attention in recent decades, particularly in developing countries endowed with natural resources, such as those in Sub-Saharan Africa. Several economists have highlighted the intrinsic key role played by institutions and good governance practices in escaping the natural resource curse, and promoting the structural transformation ([17]; [70]; [18]; [55]; [65]). [50] and [25] argue that structural transformation is a key driver of economic growth and sustainable development. It refers to the transition from a traditional, rent-based economy to a modern production-based economy in which the industrial sector contributes significantly to national income. In this context, natural resource rents can also play an important role in economic growth and may support the promotion of structural transformation in natural resource endowed Central African countries. According to [31], revenues from natural resources constitute an important source of financing in the implementation of development programs. Thus, [23], corroborating the above assertions, showed the importance of oil revenues in financing the various industrial sectors essential to achieving the Sustainable Development Goals (SDGs). In this economic transition, industrialization through its level of productivity and its ability to influence the development of other sectors of the economy, occupies an important place. For [15], industrialization is essential to the promotion and achievement of a positive transformation of the economy in connection with institutions quality that would promote, on the one hand, innovation and the accumulation of human capital ([51]) and, on the other hand, the efficient allocation of resources, research and development ([66]). Industrialization, fueled by natural resource revenues, is essential to promoting and achieving positive economic transformation, but this is linked to the quality of institutions, as poor governance undermines the key drivers of progress-democracy, security, and development in Central Africa. Progress made in few countries is not reflected across the subregion. Thus, [76] reveals that the Central Africa countries have very low scores, ranking on average among the last in terms of governance perception index ([84]). As elucidated in Figure 1, the radar graph provides a comprehensive overview of the Central Africa governance situation.

The radar graph shows a marked tendency among the countries of the Central Africa, of which the majority exhibits governance indices ranging from −2.5 to 0. These indices are indicative of substandard governance and fragile institutions in

Source: author, on excel. Note: PSt is the Political Stability and Absence of Violence; RL is Rule of Law; RegQ is the Regulatory Quality; Geff is the Government Effectiveness; Ccor is the Control of Corruption; Vac is the Voice and Accountability.

Figure 1. Central Africa Governance situation in 2022 ([84]).

the region. The only notable exception is Rwanda, whose governance indices approximate the neutrality threshold, and are in fact marginally positive: Ccor at 0.57, RegQ at 0.06, RL at 0.17, Geff at 0.22 and PSt at 0.07. However, despite these relatively favourable values, Rwanda exhibits an index of −0.95 for the ‘Voice and Accountability’ (Vac) component, indicating that civic engagement, freedom of expression, and governmental accountability towards the population are considerably constrained. This vulnerability underscores an inherent contradiction: the enhancement of institutions and certain regulatory mechanisms without concomitant progress in democratic freedoms and political transparency. The prevalence of unfavorable outcomes in the region corroborates the conclusions of [46], who cautioned against the inadequacy of governance mechanisms and the fragility of institutions in multiple African nations. The absence of robust and reliable cadres has a detrimental effect on both economic development and the consolidation of democracy and political stability. The radar graph provides a precise and nuanced cartography of governance within the Central Africa, emphasizing the urgency for comprehensive reform, particularly in the domains of political responsibility and citizen participation, where the disparities are most pronounced. The diagnostic assessment indicates that, while some institutional advancements have been observed, particularly in Rwanda, the majority of the Central Africa states are perpetuating a cycle of inadequate governance, resulting in significant negative outcomes that substantiate the structural fragility that has been repeatedly highlighted over several years.

Theoretically, the economic literature highlights two main approaches. The first approach argues that when natural resource endowments are combined with weak institutions and poor governance practices, they fail to help countries escape the natural resource curse and instead hinder structural transformation. According to the resource curse hypothesis, economies that rely heavily on natural resources are more likely to experience limited or low levels of structural transformation due to weak institutions and poor governance ([13]; [70]; [69]; [39]). The second approach suggests that natural resource endowments, when combined with strong institutions and good governance practices, enable countries to escape the natural resource curse and promote structural transformation. This is in line with the theory of endogenous growth, which highlights the importance of institutions in long-term economic development and in creating an environment that fosters investment, innovation, and structural transformation ([66]; [51]; [17]).

Empirically, we have studies showing that corruption and poor governance can lead to inefficient use of natural resource revenues and hinder structural transformation ([82]; [60]; [80]; [43]; [32]), and the studies revealing that states with good governance and strong institutions are more likely to benefit from natural resources and promote structural transformation ([19]; [22]; [72]; [45]; [12]; [34]; [8]). These theoretical and empirical approaches are detailed in the literature review (section 2). According to [78], an increase in diversification indices in several subregions of Sub-Saharan Africa, has been observed. This is the case of the West African sub-region, where the diversification index increased from 0.74 in 2009 to 0.76 in 2019. This diversification index in Central Africa for the same periods increased from 0.82 to 0.83. Similarly, the [3] studies covering the period from 1995 to 2018 on the transformation of African economies, showed that the weight of the primary sector to GDP recorded a decrease from 39.86% to 31.95% for the period from 1995 to 2018, while the secondary and tertiary sectors recorded an increase, from 23.8% to 26.28% and from 36.34% to 41.77%, respectively. This progression is reinforced by a slight increase of the industrial sector weight in the Gross Domestic Product (GDP) of African countries. According to the [81], this weight of the industrial sector to GDP (secondary and tertiary sectors) of the Sub-Saharan African countries increased from 10.15% in 2009 to 11.37% in 2019, while in the primary sector, it increased from 58.87% in 2009 to 54.33% in 2019. The contribution of the industrial sector to GDP, which increased from 36.80% in 1998 to 40.34% in 2021 in Central Africa ([81]), remains low despite the various mining and oil booms that have occurred in these countries ([53]; [37]).

Regarding the relationship between natural resources, governance, and structural transformation, the neoliberal perspective holds that natural resources constitute a precondition for the economic takeoff of less advanced countries toward the industrial stage ([68]; [16]). Specifically, natural resources provide funds for the accumulation of physical capital, thereby increasing demand for industrial goods. However, natural resources may or may not promote structural transformation, as the outcome largely depends on the quality of institutions, particularly in countries with abundant stocks of natural resources. From these facts, the structural transformation of the Central Africa economies remains a problem to which solutions must be found.

Our main objective is to examine how governance moderates the effects of natural resource rents on structural transformation in Central Africa? Considering the above, the following testable hypotheses are considered within the remit of the empirical analysis of this study:

Hypothesis 1: Governance components indices in Natural resource rents, influence structural transformation in a mixed way;Hypothesis 2: Governance composite index in interaction with Natural resources rents, exerts a negative influence on structural transformation;Hypothesis 3: Natural resource rents and governance composite index have a negative influence on structural transformation, respectively.

The effects of natural resources and governance have been individually formulated as first-order direct effects. However, it is important to recall that even if the first-order direct effect of governance is not significant, second-order indirect effects can be significant because the absence of significance in linear additive models does not rule out the possibility that nonlinear combinations of the corresponding variables can yield significant effects. This is essentially because in the real world, these considered variables do not exclusively act in isolation but are contingent on complementary factors. Whether the investigated nexuses are significant is a matter of empirical validity, which is the object of the following section (2).

The focus of the research is on ten countries of Central Africa and allows us to examine how the governance interfairs in natural resource rents and the structural transformation relationship. The choice of Central Africa as a study area is justified by the availability of data and the low contribution of their industrial and service sectors to GDP, with weak institutions and very low governance indices, which places Central Africa states among the worst performers in the world in terms of governance perception. This study contributes to the growing body of literature on the resource curse and underscores the importance of holistic strategies to harness the potential of natural resources for sustainable development in the Central Africa region. Besides the introduction, the rest of this study is structured into four (4) sections, which are: literature review (Section 2), data and methodology (Section 3), empirical analysis (Section 4), and concluding implications (Section 5).

It is important to recall that the present study examines how governance moderates the effects of natural resource rents on structural transformation in Central Africa. Theoretically, two approaches emerge from the literature. The first approach stipulates that natural resources combined with institutions weakness and poor governance practices, do not help in escaping the natural resource curse, and hinder structural transformation. This approach, in line with the theory of the resource curse developed by [13], is the basis of all problems related to economic growth and structural transformation of African states endowed with natural resources. The primary explanation lies in institutional weakness and poor governance. The “resource curse” is a term used to describe the phenomenon where countries with abundant natural resources, such as minerals, fail to achieve comparable economic growth and development to those without such resources ([33]). This concept highlights a paradox where the presence of natural resources does not guarantee success in achieving sustainable economic growth and poverty reduction ([29]). The resource curse phenomenon is often associated with pervasive corruption, a lack of secure property rights, persistently high unemployment, and striking income inequalities ([27]). [70] asserted that resource-rich countries have weaker manufacturing sectors than resource-poor countries because resource rents encourage economic agents to engage in rent-seeking activities, which stifles economic growth. For the natural resource curse theory, the mobilization of transmission channels is necessary to explain the effects of the natural resource curse for states endowed with natural resources. Rent-seeking, which is one of the channels, promotes corruption, political instability, conflicts, etc.

[13] believes that rent-seeking behavior leads to corruption and discourages investment. Similarly, [75] argue that rent-seeking behavior is common in economies with high natural resource endowments and weak political and judicial institutions, calling into question the type of economic policy implemented and the legitimacy of these actors. In such contexts, rent distribution tends to lack transparency, favoring patronage networks and reinforcing the rent-seeking behavior of political and military elites. These predatory interest groups are sometimes more powerful than political parties and/or the government. This leads to “petromania” behaviors of inefficient public spending and budgetary and economic crises. These rent-seeking behaviors are common in the issuance of permits or operating licenses to extractive companies ([59]). [71] argue that oil booms exacerbate rent-seeking behavior and lead to corruption and inefficient spending within government. Furthermore, [28] and [67] reveal that mineral rents, if poorly managed, can also lead to autocratic rule and civil conflict, thus weakening states structures and encouraging rent-grabbing. According to [36], deteriorating governance quality increases the risk of wars and conflicts. Indeed, natural resources represent a significant source of funding that attracts the attention of many rebel groups and organizations. The plundering of natural resources by these nascent groups can be used to purchase weapons, form and train militias, and challenge government forces. [26] argues that natural resources generate tensions between neighboring states. In many parts of the world, several border disputes are linked to natural resources: Iraq’s invasion of Kuwait in 1990, the war in 1995 between Peru and Ecuador over border territory reputed to be rich in oil, the conflict in the East of Congo DR, rich in rare minerals, the border dispute between Nigeria and Cameroon over Bakassi, an oil-rich area, etc.

Moreover, the second approach reveals that natural resources, combined with strong institutions and good governance practices help in escaping the natural resource curse, and promote structural transformation. This approach is in line with the endogenous growth theory, initially focused on the work of [66], [51], and [17]. This approach argues that strong institutions promote innovation, human capital accumulation ([51]), efficient allocation of resources, and research and development ([66]). This inevitably leads to a positive structural transformation of the economy. The theory of endogenous growth argues that institutions play a crucial role in the long-term economic growth process. Indeed, it explains that economic, political, and social institutions largely determine the ability to achieve sustainable economic growth. Strong institutions, such as stable legal and regulatory frameworks, well-defined property rights, an efficient financial system, and an environment conducive to innovation, promote investment, capital accumulation, productivity, and innovation, which lead to sustained economic growth and structural transformation. Also, by encouraging structural transformation, institutions can foster the shift from an agricultural economy to a more diversified economy focused on higher value-added industries. This requires creating conditions conducive to the emergence of new industries, the development of vocational training, access to financing, and the protection of workers’ rights.

In addition, [5] stated excessive reliance on natural resource rents can adversely affect institutional quality in resource-rich countries. These effects can persist for a long time, thus threatening long-term economic growth. This situation is common to many transition countries with abundant resource that have experienced significant institutional changes. Furthermore, the fact that a country is endowed with natural resources often makes it difficult for the government to make the necessary institutional reforms, which can lead to growth that is not sustainable in the long term. Indeed, many historical facts have explored that resource-poor countries tend to grow faster than resource-abundant countries; it’s also worth bearing in mind that natural resource wealth was not the main driving force behind the countries’ economic success in the past. Despite abundant natural resources, Norway and Botswana have harnessed their natural resource windfalls to generate robust growth rates, and their experiences serve as good lessons to natural resource-endowed countries ([47]; [41]). The Norwegian government has isolated oil rents from politically induced goals by allocating them to productive investments under a transparent operational framework ([77]). Similarly, [2] pointed out that Botswana has successfully managed its natural resource rents due to its sound governance practices and high-quality institutions especially in terms of property rights that have hitherto been mainly influenced by pre-colonial institutions. This shows the wisdom of insisting first and foremost on stepping up institutional reforms and building up good governance that is the way out of the resource curse owing to its ability to turn natural resource wealth into a boon and enable resource-abundant countries to generate robust and sustainable economic growth.

Empirically, the existing literature focuses on the effects of natural resource rents combined with the governance. The importance of institutional and governance in determining the effect of natural resource rents has been widely acknowledged. [4] revealed that the issue lies not with the natural resources themselves, but with the lack of good governance. Thus, empirical literature shows how the effects of resource leasing on structural transformation varie depending on the level of institutional development. The analysis of structural transformation can be enriched by tools, concepts and insights from empirical literature based on economic growth, and vice versa. These two fields can therefore complement each other to improve our understanding of economic dynamics. ([19]; [22]; [72]; [45]; [12]; [34]; [8]).

[72] found that natural resources could positively affect economic growth when combined with good institutional quality. [10] studied the relationship between oil wealth and economic growth in MENA countries, noting improvements in institutions and economic reforms. [22] found a positive correlation between natural resource revenues and economic growth, especially with strong institutions. [45] discovered that resource rents can boost public investments in sub-Saharan Africa, depending on political institutions. [12] emphasized the importance of institutional quality in the impact of oil revenues on long-term economic growth. [57] studied the effects of natural resource revenues, international trade, financial development, trade opening, and institutional quality on economic growth and human development index, showing a positive effect on economic growth but a negative impact on human development. [19] discovered that the resource-blessing hypothesis applies to MENA countries regardless of their democratic status.

They also found that the presence of a military officer as the chief of state is a key factor in determining whether the resource curse is evident. Specifically, their research revealed that countries with military leaders experience the resource curse, as oil rents do not contribute to economic growth. [48] found no direct link between commodity prices and economic growth, but they did identify an indirect impact of corruption hindering growth when analyzing the effect of natural resource rents on economic growth in resource-rich countries from 1970 to 1990. [61] also explored the resource curse hypothesis and discovered that natural resources can hurt growth in isolation but have a positive impact when considering factors like corruption, investment, and education. [60] suggested that oil-exporting countries in Africa have been affected by the resource curse, analyzing the impact of oil rents on economic growth in African oil-exporting countries from 1970 to 2000 and highlighting the negative effects of factors such as lack of democracy and weak institutions. [80] provided evidence on how natural resources influence physical capital development in Eurasian economies, emphasizing the challenges posed by weak institutions and inadequate management of public investment processes. [43] argued that natural resources do not always lead to economic growth in resource-rich countries.

[35] examined how institutional quality affects economic growth in oil-rich African countries, finding limited impact. [9] used a vector-based autoregressive approach to study the impact of oil dependence on economic growth in 76 countries from 1980 to 2012. They emphasized considering the endogenous nature of institutions and the influence of political institutions on the relationship between resource dependence and economic growth. The study suggests that in countries with weak political institutions, oil dependency may not lead to improved economic performance, underscoring the significance of understanding the interplay between natural resources and macroeconomic outcomes within the context of institutional quality. [32] analyzed the impact of oil revenue and its volatility on economic growth, as well as the influence of institutions on this relationship using the ARDL method. The study covered the period 1961-2013 for 17 major oil-producing countries. The findings indicated that oil revenue volatility has a significant negative impact on economic growth, while a higher growth rate of oil revenue positively affects economic growth. Additionally, the study suggests that good institutions can help mitigate the adverse effects of oil revenue volatility. The combination of volatile oil revenues and inadequate governmental responses contributes to the resource curse phenomenon. [7] examined the effects of resource and institutional wealth on economic growth in developed and underdeveloped countries, finding no significant impact. [30] discovered that institutional quality could offset the negative impact of resource rents on financial development in African nations. [1] identified institutional quality thresholds that establish a positive link between resource rents and economic growth in sub-Saharan Africa. In a study conducted by [40], the impact of mineral resource dependence on human development and economic growth in ten rich natural resource African countries was analyzed. The study revealed a weak negative correlation between human development growth and the proportion of mineral rents. The authors suggested that despite an increase in resource rents, economic growth is hindered by institutional weaknesses and corruption.

[54] studied the relationship between oil rents and economic growth in 11 MENA oil-exporting countries from 1996 to 2017. The study used various statistical methods to analyze the data. The findings indicate that oil revenues have a significant positive impact on the economic growth of MENA oil exporters. However, these revenues were found to be resource dependent. The study also highlights the importance of governance in revenue diversification, as oil rents tend to discourage economic diversification efforts by promoting income-focused activities. [56] examined how oil rents affect economic growth in oil-rich countries with overvalued currencies and weak institutions. The study found that oil rents have a detrimental impact on economic growth in countries with poor institutional quality. [20] investigated the connection between oil dependence, institutional quality, and economic growth, emphasizing the non-linear relationship and the crucial role of institutions in shaping economic outcomes in oil-dependent nations. [73] explored the relationship between natural resources, environmental pollution, and economic growth in China, revealing a negative impact of natural resources on environmental pollution and economic growth, known as the “resource curse”.

[6] studied the impact of governance on physical infrastructure development in 15 MENA countries by using natural resource rent for public investment. Their findings indicate that enhancing governance quality has a positive influence on physical infrastructure development in the MENA region. The research shifts away from conventional arguments about the curse of natural resource rent and focuses on the relationship between natural resource rent, good governance, and infrastructure development. The results highlight the importance of natural resource rent and governance in infrastructure development. More recently, [8] examined the impact of natural resources on sustainable economic development in eight resource-rich countries in sub-Saharan Africa from 1981 to 2017. This study included public debt as an explanatory variable to assess its impact on economic growth. Using the NARDL threshold test and Granger asymmetric causality tests, the researchers found that commodity prices had varying effects on economic development in different countries. Equatorial Guinea had a positive impact, while the Republic of the Congo had a negative one, supporting the resource theory. The study recommended improved public debt management and institutional enhancements to support economic development in resource-rich countries. Similarly, [24] studied the impact of natural resources on human development, emphasizing the role of governance.

Analyzing data from 44 major commodity-exporting countries from 1990 to 2021, the study found that oil and gas prices supported the resource-richness hypothesis, while coal prices supported the neutral hypothesis. Good governance was found to have a positive effect on human development. The study revealed a mix of blessing and curse of resources outcomes across countries, highlighting the importance of governance for utilizing resource wealth effectively to promote inclusive growth and human development. In their study, [74] employed machine learning techniques to examine governance in countries with abundant oil resources. By applying Principal Components Analysis and K-clustering, the researchers categorized countries into six groups based on indicators of good governance. The findings of the study provide evidence in support of the resource curse theory, underscoring the connection between governance quality and the management of natural resources. To mitigate this issue, countries that rely on oil production should establish clear and transparent regulations for managing resource revenues and prioritize economic diversification. The study of [82] assessed the contribution of institutional quality to structural change in ECCAS countries. Using a sample of 11 countries from a panel of data observed covering the period from 1996 to 2021, the results show that institutional quality negatively explains the level of structural. Moreover, using disaggregated institutional quality, the effect remains the same for regulatory quality and the rule of law. Data and methodology of this study are presented in the following section.

This section presents the data and methodology of the study.

This section analyses the indirect and direct effects, respectively. Subsection 4.1 focuses on the indirect effects of natural resource rents and governance on structural transformation (evaluation of Hypotheses 1 and 2). Considering the defined subsample, point 4.1.1 deals with indirect effects of the interaction of natural resources and the components indices of governance on structural transformation (specification 1a), while point 4.1.2 analyzes the indirect effects of the interaction of natural resources rents and governance composite index on structural transformation (specification 1b). Subsection 4.2 analyzes the direct effects (evaluation of hypothesis 3). The robustness analysis and further discussions of the results are carried out in subsection 4.3. Before discussing the empirical results, it should be noted that information criteria are used to determine whether the evaluated models withstand empirical validity. The estimation process begins with the analysis of the statistical properties of the data by testing the stationarity, cointegration, transversal dependence, and homogeneity of the series covering the period from 1996 to 2023. Considering the panel of 10 Central Africa countries, the Prais-Winsten regression model with Panel Corrected Standard Errors (PCSE), which also controls for heteroscedasticity and serial correlation, is used to estimate all the models. For robustness checks and to observe the consistency of the results, we deploy the Feasible Generalized Least Squares (FGLS) techniques. Given that both PCSE and FGLS techniques pertain to only the conditional mean of the dependent variable, we re-estimate again specifications (1a) and (1b) using the FGLS technique for the specific analysis of the sub-region revealing the complexity of territorial dynamics. We recall that PCSE technique is a static panel data technique suitable for estimating long run analysis. It is applicable when the number of cross sections is less than the time dimension ( N < T ) and controls for cross sectional dependence, autocorrelation and heteroscedasticity. It is therefore necessary to verify the stationarity through the [49] (LLC), and [42] (IPS) tests (Table 2), the cointegration through the [44], [63] and [83] tests, and the transversal dependence and homogeneity through the transversal dependence test (LM test by [21]), which allows checking if the residuals are correlated between transversal units, and the homogeneity test (Modified Wald test by greene, often cited in contexts like [64]) to check the heterogeneity of coefficients in a panel model.

All the data set are tested to determine the integration order of I (0) or I (1). The tests have conducted to check whether our variables are not stationary at level, but they are stationary at first difference. Furthermore, [49] found that the use of panel unit root tests is more efficient than time series unit root. However, the IPS unit root test is more critical than the LLC unit root test due to its appropriateness for regression of heterogeneity unit root. Essentially, the LLC and IPS tests allow us to explain the stationarity and significance of the study variables in first difference (or integrated of the same order 1). Indeed, the IPS and LLC tests in general, do not allow us to reject the null hypothesis of the presence of a unit root (Table 2).

Table 2. Stationarity tests of IPS and LLC.

Source: author, on Stata 17. ***, ** and * explain the levels significance at 1%, 5% and 10%, respectively. Note: I (1) and I (0) represent the significance and stationarity respectively, in first difference and in level of the variables.

The result of the transversal dependence test shows that the null hypothesis of independence is rejected at the 1% significant level, as the probability values turned out to be below 1%. The series therefore exhibit transversal dependence. It means that a shock occurring in the Central Africa can be transmitted to other countries in the sub-region. Moreover, the results of the homogeneity test show that the null hypothesis of homogeneity of slope coefficients is rejected. These results therefore support country-specific heterogeneity. The results of the cointegration and transversal dependence and homogeneity tests are shown respectively in Table 3(a), Table 3(b) and Table 4.

Table 3. (a) Cointegration Tests; (b) [83] cointegration test.

(a)

Source: author, on Stata 17. Note: ***, ** and * explain the levels significance at 1%, 5% and 10%, respectively.

(b)

Source: author, on Stata 17. Note: ***, ** and * explain the level significance at 1%, 5% and 10%, respectively. The significance results of the cointegration test ([83]) at 1%, 5% and 10% levels, indicate the existing of long run relationship among the variables.

Table 4. Transversal dependence and Homogeneity tests.

Source: author, on Stata 17.

The results of Pedroni’s cointegration tests confirm those of [44] tests. There is a cointegrated panel model.

The Westerlund test is the second-generation panel cointegration tests proposed by [83]. This technique is suitable in the presence of CSD (Cross-Sectional Dependence) in the data, and the null hypothesis of no cointegration can be rejected at the 1%, 5%, and 10% signifcance levels. Finally, given the presence of cross-sectional dependence in the data and cointegration among the variables, the Prais-Winsten regression model with Panel-Corrected Standard Errors (PCSE) under Correlation (Psar1) independent, is employed.

The null hypothesis (H0) of independence is rejected at the 1% significant level, as the P-values is egal to 0.000. The homogeneity test shows that the null hypothesis (H0) of homogeneity is rejected.

This section presents the conclusion and policy implications.