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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. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
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  7. Robinson, James A & Torvik, Ragnar & Verdier, Thierry, 2002. "Political Foundations of the Resource Curse," CEPR Discussion Papers 3422, C.E.P.R. Discussion Papers.
  8. 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, vol. 19(2), pages 141-174.
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  10. Romp, Ward & de Haan, Jakob, 2005. "Public capital and economic growth: a critical survey," EIB Papers 2/2005, European Investment Bank, Economics Department.
  11. Bhattacharyya, Sambit & Hodler, Roland, 2010. "Natural resources, democracy and corruption," European Economic Review, Elsevier, vol. 54(4), pages 608-621, May.
  12. Paul Collier & Rick Van Der Ploeg & Michael Spence & Anthony J Venables, 2010. "Managing Resource Revenues in Developing Economies," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 84-118, April.
  13. Hausman, Jerry & Stock, James H. & Yogo, Motohiro, 2005. "Asymptotic properties of the Hahn-Hausman test for weak-instruments," Economics Letters, Elsevier, vol. 89(3), pages 333-342, December.
  14. Collier, Paul & Hoeffler, Anke, 2009. "Testing the neocon agenda: Democracy in resource-rich societies," European Economic Review, Elsevier, vol. 53(3), pages 293-308, April.
  15. Sambit Bhattacharyya & Roland Hodler, 2010. "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions," CSAE Working Paper Series 2010-40, Centre for the Study of African Economies, University of Oxford.
  16. Zac Mills & Annette Kyobe & Jim Brumby & Chris Papageorgiou & Era Dabla-Norris, 2011. "Investing in Public Investment," IMF Working Papers 11/37, International Monetary Fund.
  17. 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, vol. 8(2), pages 1-15, April.
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Cited by:
  1. Bhattacharyya, Sambit, 2013. "Political origins of financial structure," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 979-994.
  2. Sambit Bhattacharyya & Roland Hodler, 2010. "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions," CSAE Working Paper Series 2010-40, Centre for the Study of African Economies, University of Oxford.
  3. van der Ploeg, Frederick & Venables, Anthony J, 2011. "Natural resource wealth: the challenge of managing a windfall," CEPR Discussion Papers 8694, C.E.P.R. Discussion Papers.
  4. Ilham Haouas & Raimundo Soto, 2012. "Has the UAE Escaped the Oil Curse?," Documentos de Trabajo 412, Instituto de Economia. Pontificia Universidad Católica de Chile..

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