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No evidence of an oil curse: Natural resource abundance, capital formation and productivity

Author

Listed:
  • Al Raee, Mueid

    (UNU-MERIT)

  • De Crombrugghe, Denis

    (SBE, Maastricht University)

  • Ritzen, Jo

    (UNU-MERIT, Maastricht University)

Abstract

This chapter examines the relationship between labour productivity, capital formation, and natural resource extraction in countries with natural resource reserves. We develop a theoretical two-sector model for a closed economy that maximises consumption over time, and examine how the control variables - natural resource extraction and the savings rate - determine fixed capital investment. We find that in a closed economy, the overall labour productivity is a positive function of capital investment per labour. That is in turn related to the externally given natural resource price, natural resource reserves and the resource extraction ratio. High natural resource prices and extraction rates provide opportunities to increase the overall investment in fixed capital and thus boost the labour productivity. We empirically test this model for oil as a natural resource. The data covers 36 years from 1980 to 2015 and includes 149 countries. 85 of these countries possessed commercially recoverable oil reserves in at least a part of the time period covered. We are able to exploit the panel and carry out the estimation using two-way fixed effects. We observe that oil price has an overall positive impact on labour productivity growth in the modern sector. The savings rate and schooling are positively correlated to labour productivity growth as well as fixed capital formation per capita. We find that the oil sector variables - oil reserves and oil extraction ratio - do not contribute to labour productivity growth directly, rather through increased capital formation per capita.

Suggested Citation

  • Al Raee, Mueid & De Crombrugghe, Denis & Ritzen, Jo, 2019. "No evidence of an oil curse: Natural resource abundance, capital formation and productivity," MERIT Working Papers 2019-023, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2019023
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    structural change; natural resource curse; GCC; theoretical modelling; empirical application; capital formation;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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