Institutions Matter: The Role of Institutional Quality in the Effectiveness of Natural Resource Funds

Abstract

Purpose | This study evaluates the role of institutional quality in enhancing the effec¬tiveness of Natural Resource Funds (NRF), with a particular focus on their capacity to mitigate the resource curse and fulfil stabilising, investment, and savings functions.Research method | The analysis covers 28 resource-rich countries and 27 NRF over 2000–2023. It draws on the results of a previously conducted Systematic Literature Re¬view (SLR), complemented by panel regression models assessing the effects of different NRF types, institutional indicators, and their interactions on government expenditure volatility, investment levels, and the accumulation of savings. Results | The findings show that institutional quality is a decisive factor shaping NRF performance. Across functions, positive fund effects emerge primarily in interaction with institutional indicators, with control of corruption and government effectiveness exerting the strongest and most stable influence. NRF impacts are most visible within two to three years, weakening at longer lags. Savings funds (SFG) display the most du¬rable effects, surpassing stabilisation (SF) and investment funds (IF). In the stabilising function, significant results appear mainly through fund-institution interactions, with SFG increasingly assuming roles traditionally attributed to SF. For investment, NRF stimulate investment primarily in high-quality institutional environments, with par¬ticularly strong responses for SFG. Regarding the savings function, domestic savings yield inconclusive results, while analyses based on foreign assets indicate that SFG – and especially IF – contribute to the accumulation of external wealth, confirming the savings role. Originality / value / implications / recommendations | The study demonstrates that in¬stitutional quality is not a complementary factor, but a key enabling condition for NRF effectiveness. It highlights the importance of fund typologies, the broader functional scope of SFG, and the need for improved metrics - especially in evaluating savings and economic diversification functions.