Abstract
A number of studies have suggested that an abundance of natural resource gives rise to what is known as ‘Dutch disease’, and also distorts the quality of institutions. In contrast, this paper examines whether plenty of natural resource crowds out human capital in the context of Saudi Arabia using the VECM model. The study investigates this relationship at the country level rather than through panel or cross-section data as is the case in most other studies. The results show that natural resources have a positive effect on human capital. The presence of natural resources and their rents enable investment in education. This, in turn, facilitates the building of human capital. The link between education and human capital accumulation is complex and more investment in education does not automatically lead to more human capital accumulation. To conclude, it is incorrect to assume the harmful effect of resources on human capital in all resource-rich economies, without a detailed examination of country specific historical data. Keywords: natural resource curse, transmission channels of curse, human capital, growth, education, Dutch disease, Saudi economy, unit root and cointegration tests, VAR model. DOI : 10.7176/JESD/10-22-10 Publication date: November 30 th 2019
Highlights
Most recent literature argues that natural resources are a curse rather than a boon, as data from the 19th Century indicate that resource rich economies experienced lower growth rates relative to their resource-poor counterparts
The estimates of VECM model present new evidence of the positive relationship between natural resources as measured by the share of oil rents in GDP and human capital measured by gross enrolment rates for tertiary level education
It is important to bear in mind that the quality of education has not been accounted for and more education does not necessarily mean more human capital accumulation
Summary
Most recent literature argues that natural resources are a curse rather than a boon, as data from the 19th Century indicate that resource rich economies experienced lower growth rates relative to their resource-poor counterparts. For more details on these channels see (Corden & Neary, 1982; Krugman, 1987; Gelb, 1988; Matsuyama, 1992; Lane & Tornell, 1996; Collier & Loeffler, 1998; Baland & Francois, 2000; Birdsall et al, 2001; Gylfason, 2001; Torvik, 2002; Hodler, 2006 and Cabrales & Hauk, 2011). One such channel is the tendency to neglect investment in human capital. The aim of this study is to find out whether an abundance of natural resources distorts economic growth by crowding out investment in human capital
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