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Public Capital in Resource Rich Economies: Is there a Curse?

  • Sambit Bhattacharyya
  • Paul Collier

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 and substantially 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 economic and political institutions and worsened by GDP volatility and ethnic fractionalization. Rents from depleting resources have more adverse effects than those that are sustainable. Our main results are robust to a variety of controls, and to instrumental variable estimation using commodity price and rainfall as instruments, Arellano-Bond GMM estimation, as well as across different samples and data frequencies.

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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2011-14.

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Date of creation: 2011
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Handle: RePEc:csa:wpaper:2011-14
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  1. 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 11, Verein für Socialpolitik, Research Committee Development Economics.
  2. Rick Van der Ploeg & Tony Venables, 2011. "Harnessing windfall revenues: Optimal policies for resource-rich developing economies," Economics Series Working Papers 543, University of Oxford, Department of Economics.
  3. James A. Robinson & Ragnar Torvik & Thierry Verdier, 2003. "Politcal Foundations of the Resource Curse," DELTA Working Papers 2003-33, DELTA (Ecole normale supérieure).
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  7. Paul Collier & Frederick van der Ploeg & Michael Spence & Anthony J Venables, 2009. "Managing Resource Revenues in Developing Economies," OxCarre Working Papers 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  8. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  9. Sambit Bhattacharyya & Roland Hodler, 2010. "Do Natural Resource Revenues Hinder Financial Development?� The Role of Political Institutions," Economics Series Working Papers CSAE WPS/2010-40, University of Oxford, Department of Economics.
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  12. Christophe Kamps, 2005. "New Estimates of Government Net Capital Stocks for 22 OECD Countries 1960-2001," Public Economics 0506015, EconWPA.
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  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. Bhattacharyya, Sambit & Hodler, Roland, 2010. "Natural resources, democracy and corruption," European Economic Review, Elsevier, vol. 54(4), pages 608-621, May.
  16. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," World Bank Economic Review, World Bank Group, vol. 13(2), pages 333-56, May.
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  18. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
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