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Public capital in resource rich economies: is there a curse?

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  • Sambit Bhattacharyya
  • Paul Collier

Abstract

As poor countries deplete their natural resources, for increased consumption to be sustainable some of the revenues should be invested in other public assets. Further, since such countries typically have acute shortages of public capital, the finance from resource depletion is an opportunity for needed public investment. Using a new global panel dataset on public capital and resource rents covering the period 1970 to 2005 we find that, contrary to these expectations, resource rents significantly reduce the public capital stock. This is more direct evidence for a policy-based 'resource curse' than the conventional, indirect evidence from the relationships between resource endowments, growth and income. The adverse effect on public capital is mitigated by good institutions. We also find that rents from the depletion of non-renewable (mineral) resources reduce the public capital stock whereas rents from sustainable (forestry and agriculture) sources do not. Copyright 2014 Oxford University Press 2013 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 66 (2014)
Issue (Month): 1 (January)
Pages: 1-24

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Handle: RePEc:oup:oxecpp:v:66:y:2014:i:1:p:1-24

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  1. Sambit Bhattacharyya & Roland Hodler, 2010. "Do Natural Resource Revenues Hinder Financial Development?� The Role of Political Institutions," Economics Series Working Papers, University of Oxford, Department of Economics CSAE WPS/2010-40, University of Oxford, Department of Economics.
  2. Christophe Kamps, 2005. "New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001," Public Economics, EconWPA 0506015, EconWPA.
  3. Sambit Bhattacharyya & Roland Hodler, 2008. "Natural Resources, Democracy and Corruption," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 020, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  4. Frederick Van der Ploeg & Anthony J. Venables, 2009. "Harnessing Windfall Revenues: Optimal Policies for Resource-Rich Developing Economies," CESifo Working Paper Series, CESifo Group Munich 2571, CESifo Group Munich.
  5. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 22(2), pages 187-231, June.
  6. Zac Mills & Annette Kyobe & Jim Brumby & Chris Papageorgiou & Era Dabla-Norris, 2011. "Investing in Public Investment," IMF Working Papers, International Monetary Fund 11/37, International Monetary Fund.
  7. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 333-56, May.
  8. Robinson, James A & Torvik, Ragnar & Verdier, Thierry, 2002. "Political Foundations of the Resource Curse," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3422, C.E.P.R. Discussion Papers.
  9. Paul Collier & Benedikt Goderis, 2007. "Prospects for Commodity Exporters," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(2), pages 1-15, April.
  10. Blattman, Christopher & Hwang, Jason & Williamson, Jeffrey G., 2007. "Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939," Journal of Development Economics, Elsevier, Elsevier, vol. 82(1), pages 156-179, January.
  11. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5688, C.E.P.R. Discussion Papers.
  12. Collier, Paul & Hoeffler, Anke, 2009. "Testing the neocon agenda: Democracy in resource-rich societies," European Economic Review, Elsevier, Elsevier, vol. 53(3), pages 293-308, April.
  13. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, Elsevier, vol. 67(2), pages 455-470, April.
  14. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," World Bank Economic Review, World Bank Group, World Bank Group, vol. 19(2), pages 141-174.
  15. Paul Collier & Frederick van der Ploeg & Michael Spence & Anthony J Venables, 2009. "Managing Resource Revenues in Developing Economies," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  16. Hausman, Jerry & Stock, James H. & Yogo, Motohiro, 2005. "Asymptotic properties of the Hahn-Hausman test for weak-instruments," Economics Letters, Elsevier, Elsevier, vol. 89(3), pages 333-342, December.
  17. Ward Romp & Jakob de Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 8(s1), pages 6-52, 04.
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Cited by:
  1. Frederick van der Ploeg & Anthony J. Venables, 2012. "Natural Resource Wealth: The Challenge of Managing a Windfall," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 4(1), pages 315-337, 07.
  2. Bhattacharyya, Sambit, 2013. "Political origins of financial structure," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 979-994.
  3. Bhattacharyya, Sambit & Hodler, Roland, 2011. "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions," Proceedings of the German Development Economics Conference, Berlin 2011, Verein für Socialpolitik, Research Committee Development Economics 11, Verein für Socialpolitik, Research Committee Development Economics.
  4. Ilham Haouas & Raimundo Soto, 2012. "Has the UAE Escaped the Oil Curse?," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 412, Instituto de Economia. Pontificia Universidad Católica de Chile..

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