Natural resources, financial development and structural transformation in Sub-Saharan Africa.

Structural transformation is a crucial prerequisite for inclusive and sustainable development. In this context, this study examines the influence of natural resource dependence on the transformation of industrial structure in a panel of 30 Sub-Saharan (SSA) economies from 1995 to 2019, taking into account the role of financial development. The empirical analysis relies on the newly developed bias-corrected method-of-moments estimator. The findings indicate that natural resource dependence leads to a reduction in the output contribution of the manufacturing and service industries. On the other hand, financial development through the institutions channel decreases the output value of extractive industries while increasing the output value of manufacturing and service industries, resulting in a net positive effect on the evolution of industrial structure away from extractive-based industrialization. Considering the complex multidimensional nature of financial development, further findings suggest that the depth and efficiency of financial systems are critical areas for deepening structural diversification in the sub-region. Additionally, the findings reveal a U-shaped relationship between per capita GDP and industrial structure transformation. These findings highlight that natural resource dependence inhibits structural transformation in SSA and emphasize the importance of enhancing the depth and efficiency of financial systems as part of strategies to break the resource curse.