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

Mueid Al Raee, Denis De Crombrugghe and Jo Ritzen ()
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Mueid Al Raee: UNU-MERIT
Denis De Crombrugghe: SBE, Maastricht University
Jo Ritzen: UNU-MERIT, Maastricht University

No 2019-023, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

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.

Keywords: structural change; natural resource curse; GCC; theoretical modelling; empirical application; capital formation (search for similar items in EconPapers)
JEL-codes: E21 E24 O13 O47 Q32 (search for similar items in EconPapers)
Date: 2019-07-01
New Economics Papers: this item is included in nep-dev, nep-ene, nep-gro, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2019023

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