Abstract
The objective of this paper is to contribute to research on the determinants of Genuine Savings (GS) by investigating its relationship to the Resource Curse (RC). The substantial empirical evidence confirming that resource-abundant countries are often characterised by slower economic growth can be traced back to the argument that natural resources generate rents independent of economic performance. Recent studies show a negative relation of this so-called RC to GS, a concept that is meant to measure sustainability by considering reinvestments of exactly these rents from natural capital into physical and human capital. Our cross-country analysis examines the influence of determinants and transmission channels identified to cause the RC on GS and its components. Results show that factors leading to the RC are also useful explanatory variables for GS: A clear influence of the share of primary exports in GNI as well as of trade, consumption, quality of institutions, etc. is found. Via the migration of employees and appreciation of the exchange rate, Dutch disease is used to show how the RC works through the different types of capital that make up GS. As a side effect, this combination of dependent variables can explain the RC more comprehensively than GDP growth.
Highlights
The objective of this paper is to contribute to research on the determinants of Genuine Savings (GS) by investigating its relationship to the Resource Curse (RC)
“One of the surprising features of modern economic growth is that economies abundant in natural resources have tended to grow slower than economies without substantial natural resources” (Sachs & Warner, 1995/1997)
Beside the average growth rate of the net barter terms of trade index (TOT8008), we checked for the average index values and the average volatility rate of world market commodity prices between 1970 and 2008 without significant results
Summary
The objective of this paper is to contribute to research on the determinants of Genuine Savings (GS) by investigating its relationship to the Resource Curse (RC). Genuine Savings (GS) (Note 2) as an indicator for “weak” sustainability measures the difference between the depletion of natural capital and investments in physical and human capital As expected, it is comparatively low in resource-abundant countries. Atkinson and Hamilton (2003) demonstrate that countries will be affected by the RC if natural resources, in combination with inappropriate public expenditure policies, lead to low GS rates Both papers conclude that GS is a good explanatory for the RC and provides an early warning for future declining economic growth. In searching for GS determinants, we utilize this proven relation between GS and RC but interpret it differently: A variable that reflects a theory as such suggests itself as endogenous rather than exogenous We build on this and analyze the determinants of the GS rate as well as its components by using factors already identified in literature to cause the www.ccsenet.org/jsd
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