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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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    Cited by:

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    3. Bitoto, Fabrice Ewolo & Nkoa Ongo, Emmanuel Bruno, 2024. "Natural resource rents and public spending on education in Africa: Does women's political empowerment matter?," Resources Policy, Elsevier, vol. 93(C).
    4. Kingsbury, Ian, 2018. "Making sense of low private returns in MENA: A human capital approach," International Journal of Educational Development, Elsevier, vol. 61(C), pages 173-183.
    5. Shi, Rubiao & Gao, Pengfei & Su, Xufeng & Zhang, Xi & Yang, Xiaodong, 2024. "Synergizing natural resources and sustainable development: A study of industrial structure, and green innovation in Chinese region," Resources Policy, Elsevier, vol. 88(C).
    6. Sperduto Luke, 2019. "Can Human Development Bonds Reduce the Agency Costs of the Resource Curse?," The Law and Development Review, De Gruyter, vol. 12(1), pages 191-245, January.
    7. Amir Mousavi & Jeremy Clark, 2021. "The effects of natural resources on human capital accumulation: A literature survey," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1073-1117, September.
    8. Jack Pegram & Gioia Falcone & Athanasios Kolios, 2018. "A Review of Job Role Localization in the Oil and Gas Industry," Energies, MDPI, vol. 11(10), pages 1-18, October.
    9. Evans, Olaniyi, 2022. "The criticality of institutions and the macroeconomy for education outcomes in Africa," MPRA Paper 118197, University Library of Munich, Germany.
    10. Chien, FengSheng & Chau, Ka Yin & Sadiq, Muhammad & Hsu, Ching-Chi, 2022. "The impact of economic and non-economic determinants on the natural resources commodity prices volatility in China," Resources Policy, Elsevier, vol. 78(C).

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