Abstract
This study investigates the relationship between natural resource rents, human development and economic growth in Sudan using co-integration and vector error correction modelling (VECM) over the period 1970–2015. Institutions proved to play a role in determining a difference in whether a country is cured or blessed by resource abundance. In the case of Sudan, no time series data is available on institutional quality and is therefore excluded from the analysis. The role of institutions and macroeconomic policies is captured by other variables included in the empirical model. Co-integration tests confirm the existence of a long run equilibrium relationship between resource rents, human development and economic growth in Sudan. Empirical evidence from the estimated VECM shows that economic growth is positively affected by resource rents and development expenditure but surprisingly negatively affected by life expectancy at birth in the short run. In the long run, resource rents, school enrolment, life expectancy and financial development have negative significant effects on economic growth. Only development expenditure is found to affect economic growth positively. Resource rents are found to weaken education and health levels and this is indirectly channeled into negative effects of resource rents on economic growth. These results suggest that the government has been neglecting investments to build up human capital necessary for inclusive growth. Long run Granger causality tests show a unidirectional causal relationship running from resource rents to GDP growth as well as from development expenditure to GDP growth. School enrollment, life expectancy and financial development are found to be negatively Granger causing GDP growth. Long run causal relationships reconfirm that a resource curse exists indirectly mediated by weak human capital. The study recommends that the government should manage natural resource rents with a policy framework supporting creation of a virtuous economic circle between human development and economic growth. If pursued, this would promote sustained, inclusive and equitable growth in Sudan.
Highlights
Natural resources play important roles in economic growth of any country
Other economic growth included in our model to resource rents and economic growth included in our model are development expenditure (DEY), are development expenditure (DEY), gross investment (INV), financial development measured by gross investment (INV), financial development measured domestic provided banksThe to domestic credit provided by banks to private firms (DCB)by and currentcredit account deficit by (CAD)
Over the period 1992–2012, we found that resource rents were trending up faster than development expenditure and domestic credit provided by banks, while investment as a percentage of gross domestic product (GDP) has been steadily declining
Summary
Natural resources play important roles in economic growth of any country. Natural, man-made and human capitals are conventional factors of economic growth and represent the main components in environmental sustainability accounting. The country has experienced increasing resource rents since the mid-1990s, which could have been a real opportunity to finance investments in education and health, leading to human development and promoting inclusive growth. Sudan has been performing poorly in human capital formation—both in terms education and health, despite remarkable annual economic growth records backed with an oil boom over the period. In light of the above introduction, the objective of this study is to empirically investigate the relationship between resource rents, human development and economic growth in Sudan over the period 1970–2015. The study addresses this objective through two questions; (i) how resource rents directly affect economic growth and (ii) how the effect of resource rents on human capital in terms of education and health is indirectly channeled to economic growth?
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