Natural resource rents and capital accumulation nexus: do resource rents raise public human and physical capital expenditures?

Abstract

This paper examines the effects of total, mineral, natural gas, and oil rents on the public total, education, health, and infrastructure expenditures using the dynamic panel estimation methods and data for more than 100 countries for the 1980–2015 period. Our results indicate that total resource rents do not have a significant impact on the public total and infrastructure expenditures. However, they provide a robust evidence for the adverse effect of resource rents on the public education and health expenditures. Our results lend a substantial evidence for the conclusion that the notorious resource curse can be also explained by its adverse effect on the human capital accumulation. We then test whether the democracy level matters in investigating the effects of resource rents on the public expenditures. Interestingly, we find that total resource rents exert a negative impact on the education expenditures only in autocratic countries. These results clearly indicate that policy makers should take necessary steps to remove the adverse effects of resource rents on the public education and health expenditures to increase human capital formation.

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Notes

  1. 1.

    Note that Judson and Owen (1999) strongly support a one-step system GMM especially for unbalanced panels when time dimension is small, which is the case for our sample. We then re-estimate all of the estimates in Tables 2, 3, 4, 5 andnn6 with one-step system GMM; these results are almost identical with two-step estimates. These estimates are not reported here, but available upon request.

  2. 2.

    To investigate whether there exist any differences between developing and developed countries, we split our sample by income level and re-estimate our models. Since our results do not provide any robust evidence for the existence of a difference between developing and developed countries, we do not discuss and report these results for space considerations. These results are available upon request from the authors.

  3. 3.

    We only report the results for the total rents. Because making a distinction between rent types do not provide any additional insight. These results are available from the authors.

  4. 4.

    Although the estimated coefficient on the rent measure is significant at the last column of Table 6, we choose not to discuss this result because it is largely driven by a one single outlier country, Norway, which has very high total resource rents, over ten percent during the sample period. Excluding Norway from the sample renders the coefficient insignificant.

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Correspondence to Taner Turan.

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Turan, T., Yanıkkaya, H. Natural resource rents and capital accumulation nexus: do resource rents raise public human and physical capital expenditures?. Environ Econ Policy Stud 22, 449–466 (2020). https://doi.org/10.1007/s10018-020-00264-9

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Keywords

  • Resource rent
  • Capital accumulation
  • Public education expenditures
  • Polity

JEL Classification

  • H51
  • H52
  • N50
  • O13