Resource Boom, Capital Investment and Labor Income: Bifurcation of the Resource Curse

Abstract

There has been heated debate on what the abundance of natural resources means for the host countries and regions. A growing body of comparative literature suggests that resource dependence hinders economic development due to various reasons such as the deindustrialization effects of the mining sector and the neglect of education and human capital cultivation. However, other scholars contest the existence and mechanisms of the resource curse. This study revisits the resource curse thesis and contributes to the debate by examining China, a country endowed with rich mineral resources in many of its localities, and depicts a more nuanced picture about the impacts of resource dependence on different stakeholders in the economy. Through cross-regional and longitudinal data analysis of the Chinese provinces between 1999 and 2012, it tells a two-pronged story: On the one hand, resource abundance facilitates capital accumulation and investment into not only mining industries but also other industrial sectors, and resource-generated capital is prone to flow into speculative industries such as real estate. On the other hand, resource abundance represses labor income, leading both urban and rural citizens in resource-dependent regions to suffer lower incomes. Overall, the findings suggest that resource dependence has bifurcated effects on the capital and the labor. Compared to other stakeholders in the economy, including the state and the businesses, common citizens as laborers are the most prominent victim of the resource curse.