Abstract
For many years, the United Arab Emirates has been using its natural resource wealth to develop infrastructure and attain economic growth. Nevertheless, human capital theory stresses the importance of human capital to reach sustainability in the long-term. This study examines the impacts of natural resource rents and institutional quality on human capital by applying the cointegration and error correction model based on the autoregressive distributed lag (ARDL) approach. The study uses corruption and law and order as proxies for institutional quality. The results indicate that one percent increases in resource rents and corruption decrease the human capital by 0.16% and 0.14%, respectively, in the long-term. Moreover, in the short-term, the current corruption and lag of resource rents have significant negative impacts on human capital. However, law and order has a positive impact on human capital in both the short and long-term. Thus, this study suggests that there is an instant need to prioritize education to reach long-term sustainability.
Highlights
The economic history of resource-rich countries shows varied evidence of how natural resources affect economic growth
It was found that the null hypotheses of the unit root cannot be rejected for PGDP, human capital, law and order, and corruption at the level of stationarity, but these variables were shown to be stationary at first difference
This paper investigated the nexus between natural resource rents, institutional quality, and human capital in the United Arab Emirates
Summary
The economic history of resource-rich countries shows varied evidence of how natural resources affect economic growth. These resources are considered as either an engine of growth or an obstacle to growth [1]. The mere existence of natural resources does not prompt economic stagnation, yet it causes certain distortions, which act as transmission mechanisms that, in turn, disturb economic growth. These transmission mechanisms affect growth directly, while natural resources merely exert indirect effects via the transmission mechanisms, such as declines in human capital and government mismanagement [4]. The traditional view under a policy perspective focuses on the monetary aspects of development: The growth rate and level of gross domestic product per capita
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