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Natural Resources, Incentives and Human Capital: Reinterpreting the Curse

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  • Salim M. Araji

    () (Economic Development and Globalization Division, United Nations (ESCWA), Lebanon)

  • Hamid Mohtadi

    ()

Abstract

We offer an alternative mechanism for the curse of natural resources. In this mechanism, natural resource rents, when distributed as lump sum transfers to individuals, retard economic growth by their distortive adverse effect on the incentive to invest in human capital. Extending an OLG model for this purpose, we show that if this resource-transfer effect occurs when the country’s technology level is marginal, the chance that the country will converge to a low-level equilibrium trap is greatly increased and the chance that it will converge to a high-income equilibrium in the long run is similarly reduced. We find empirical support for the model in both cross sectional and dynamic panel regressions.

Suggested Citation

  • Salim M. Araji & Hamid Mohtadi, 2014. "Natural Resources, Incentives and Human Capital: Reinterpreting the Curse," Working Papers 892, Economic Research Forum, revised Dec 2014.
  • Handle: RePEc:erg:wpaper:892
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    References listed on IDEAS

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    1. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    2. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    4. Davood Behbudi & Siab Mamipour & Azhdar Karami, 2010. "Natural Resource Abundance, Human Capital And Economic Growth In The Petroleum Exporting Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(3), pages 81-102, September.
    5. Brunnschweiler, Christa N., 2008. "Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth," World Development, Elsevier, vol. 36(3), pages 399-419, March.
    6. Frankel, Jeffrey A., 2010. "The Natural Resource Curse: A Survey," Scholarly Articles 4454156, Harvard Kennedy School of Government.
    7. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    8. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
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