Oil-dependent economies function as complex socio-economic systems in which resource revenues, institutional structures, and investment outcomes are dynamically interlinked. When governance is weak, oil windfalls can trigger reinforcing feedback loops that erode institutional capacity, reduce investment quality, and deepen resource dependence. This paper examines whether governance may function as a system-level regulating mechanism that weakens these self-reinforcing dynamics. We study 13 oil-dependent economies over 2000–2023 using the Incremental Capital–Output Ratio (ICOR)—the investment required to produce one unit of output—as a proxy for system-level capital efficiency. Panel ARDL–PMG estimation, which separates short-run perturbations from long-run equilibrium, shows that oil rents are associated with a higher ICOR in the long run, indicating declining system efficiency. A composite governance index, and anti-corruption capacity in particular, are associated with a substantially lower ICOR and weaken the oil–inefficiency transmission. Notably, anti-corruption is the only governance dimension operating across both temporal scales, functioning as both an immediate corrective mechanism (preventing procurement fraud) and a structural stabilizer (shaping the institutional environment over time). Results are robust across alternative ICOR specifications, supported by Granger causality tests, and stable when any single country is dropped. The findings identify governance—especially anti-corruption capacity—as a critical leverage point for improving system-wide capital efficiency in resource-dependent developing economies.
Nagwa Amin Abdelkawy (Sun,) studied this question.