Adhea Mita Delfiatiffany, Jamzani Sodik, Didi Nuryadin

Natural resource dependence and economic growth in Sulawesi: An empirical study of the resource curse phenomenon

Introduction

Natural resource dependence and economic growth in sulawesi: an empirical study of the resource curse phenomenon. Examine the resource curse in Sulawesi, Indonesia (2013-2023), analyzing natural resource dependence and its effect on regional economic growth. Early signs found, urging diversification.

Abstract

Natural resource abundance does not always guarantee successful regional economic development. In many cases, heavy reliance on extractive sectors can lead to structural disparities and growth stagnation, a condition widely referred to as the resource curse. This study aims to identify early signs of the resource curse in six provinces across Sulawesi Island and to examine the influence of the Regional Resource Curse Index (RRCI) on Gross Domestic Regional Product (GDRP) during the period 2013–2023. A quantitative approach was employed by constructing a composite RRCI derived from the Natural Resource Dependency Index (NRDI) and the Regional Sustainable Development Index (RSDI), followed by regression analysis using Two-Stage Least Squares (2SLS), with nickel commodity prices used as an instrumental variable. The results show that the highest RRCI value was recorded in Southeast Sulawesi at 49.7 in 2023, followed closely by West Sulawesi and North Sulawesi, both with scores of 50.8. While the OLS and Fixed Effects models found no significant effect of RRCI on GDRP, the 2SLS estimation revealed a significant and positive causal relationship, with a lnRRCI coefficient of 0.5438 at the 1% significance level. These findings suggest that regional economic growth remains strongly driven by the extractive sector, although its contribution may be short-lived. This study concludes that Sulawesi Island has not yet fully experienced the resource curse, but early indications are present. Strengthening institutional capacity and developing alternative economic sectors are necessary to prevent long-term dependency on natural resources.

Review

This study offers a timely and relevant investigation into the resource curse phenomenon within the six provinces of Sulawesi Island, a region known for its natural resource wealth, particularly nickel. The authors employ a robust quantitative approach, constructing a composite Regional Resource Curse Index (RRCI) that innovatively combines Natural Resource Dependency and Regional Sustainable Development metrics. A significant strength lies in the use of Two-Stage Least Squares (2SLS) regression with nickel commodity prices as an instrumental variable, effectively addressing potential endogeneity issues that often plague resource curse studies. This methodological rigor enhances the credibility of the findings and positions the study as a valuable empirical contribution to the literature, moving beyond simpler correlations to explore causal relationships. The findings present a nuanced picture. While initial OLS and Fixed Effects models showed no significant effect of the RRCI on Gross Domestic Regional Product (GDRP), the more robust 2SLS estimation revealed a significant and *positive* causal relationship, indicating that economic growth in Sulawesi is currently strongly driven by its extractive sector. This particular finding is crucial, suggesting that while the region has not yet fully succumbed to the negative long-term impacts of the resource curse, it is firmly in an early stage where resource extraction still fuels growth. The varying RRCI values across provinces, with Southeast Sulawesi showing the highest dependency, further underscore the heterogeneity of resource reliance within the island and highlight specific areas that may be more vulnerable to future challenges. The study concludes with a critical warning: despite the current positive contribution of the extractive sector to GDRP, early indications of the resource curse are present, and this contribution may be short-lived. This forward-looking assessment provides essential policy implications, advocating for strengthened institutional capacity and the proactive development of alternative economic sectors. By offering empirical evidence from a specific regional context, this research not only contributes to the broader academic discourse on resource curse but also serves as a vital tool for policymakers in Sulawesi and other resource-dependent economies to implement preventative measures and foster sustainable, diversified economic development.

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