Impact of natural resources on economic progress: Evidence for trading blocs in Latin America using non-linear econometric methods

Latin America is a region that is dependent on natural resources; thus, posing severe challenges for achieving economic progress along with social inclusion. This research aims to examine how the formation of trade blocs moderates the link between natural resource rents-economic progress in Latin America using non-linear econometric methods. In addition, we evaluate the moderating effect of urban concentration, knowledge, and the index of economic freedom. We find that the impact of natural resources on economic progress is non-linear and heterogeneous across trading blocs in the region. This finding shows that trade blocs moderate the impact of natural resources on economic growth in the Latin America nations. Our results suggest a threshold effect of the knowledge and index of economic freedom in the Latin American panel. In the Andean Community of Nations (CAN), we find a threshold effect of the natural resources rents and economic freedom index. In the Common Market of the South (MERCOSUR), we find a threshold effect of knowledge, urban concentration, and economic freedom index. The findings from the quantile regressions reinforce the conclusions that the link between natural resource rents and economic progress is heterogeneous across the distribution. Therefore, those responsible for economic policymaking in the Latin American countries must take advantage of the benefits of the exploitation of natural resources to diversify the economy and achieve Sustainable Development Goals 8 and 10.