Impact of natural resource management on entrepreneurial activity and SME growth in emerging economies: Does the rule of law matter?

Lawal Olamilekan Abdulwahab, Ismaheel Adewumi Raji and Shokunbi Morufu Oladimeji

Resources Policy, 2025, vol. 108, issue C

Abstract: Although existing studies have acknowledged the critical role of natural resource endowments in driving economic growth, harnessing its full potential is far from straightforward—it often hinges on the presence of sound governance structures, effective policies, and strong institutions, particularly the rule of law. Therefore, the study examines the moderating effect of the rule of law on the impact of natural resource management on entrepreneurial activity and SME growth across the 11 selected ECOWAS nations. The study employs panel data ranging from 2006 to 2022 (i.e., 17 years), using two (2) advanced econometric techniques (Heteroskedasticity Panel Corrected Standard Errors (HPCSE) and Feasible Generalized Least Squares (FGLS). The findings indicate the presence of a resource curse in the ECOWAS region, wherein the abundance of natural resources exerts a negative effect on entrepreneurial activity and the growth of SMEs. Moreover, the rule of law proves to be ineffective in mitigating these negative outcomes and its interaction with natural resource rents reveals only a weak relationship, suggesting that legal frameworks within ECOWAS countries are insufficient to mitigate the adverse impacts of resource dependency. In contrast, population growth and government expenditure on education exhibit a positive influence on entrepreneurial activity and SME growth, underscoring their role in stimulating both demand and supply within the regional economy. Practical policy recommendations include prioritizing education spending and implement legal and institutional reforms as central policy measures to reduce overreliance on natural resources and drive sustainable business growth.

Keywords: Natural resource management; Entrepreneurship; SME growth; Rule of law; Resource curse (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:108:y:2025:i:c:s0301420725002168

DOI: 10.1016/j.resourpol.2025.105674

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