Could the Lacking Absorption Capacity of the Inflowing Capital Be the Real Cause of the Resource Curse?—A Case Study of Transition Economies

Yadulla Hasanli, Elkhan Richard Sadik-Zada (), Simrah Ismayilova, Günay Rahimli and Farida Ismayilova
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Yadulla Hasanli: Centre for Studies on European Economy, Azerbaijan State University of Economics (UNEC), Baku AZ1001, Azerbaijan
Elkhan Richard Sadik-Zada: Centre for Studies on European Economy, Azerbaijan State University of Economics (UNEC), Baku AZ1001, Azerbaijan
Simrah Ismayilova: Laboratory of Modeling of Social and Economic Processes, Institute of Control Systems, Ministry of Science and Education of Azerbaijan Republic, Baku AZ1073, Azerbaijan
Günay Rahimli: Centre for Studies on European Economy, Azerbaijan State University of Economics (UNEC), Baku AZ1001, Azerbaijan
Farida Ismayilova: Centre for Studies on European Economy, Azerbaijan State University of Economics (UNEC), Baku AZ1001, Azerbaijan

Sustainability, 2023, vol. 15, issue 14, 1-17

Abstract: The present study proposes an alternative explanation for the negative natural-resource-growth nexus. Based on the theoretical analysis, the study shows that a balanced capital–labor ratio plays an essential role in the absorption of complex capital goods. It estimates the parameters of the constant elasticity of the substitution production function in Mathcad using nonlinear least squares, i.e., an approximate Marquardt method of optimization. The empirical analysis is based on the time-series data of these countries for the time interval between 2000 and 2020. We conducted analyses by calculating the elasticity of substitution between capital and labor. Specifically, for these countries, the elasticity of substitution of capital and labor appeared to be less than one, which indicates a lack of labor, or, more precisely, a qualified labor force. Each of these countries receives windfall profits from the exploitation of natural resources, which greatly influences the import of capital-intensive products of complex technologies—in other words, the import of capital. However, the lack of an adequate labor force that could utilize the increased capital led to a decrease in the elasticity of capital and labor substitution. A comparison of the optimal and the observed capital–labor ratio coefficient shows that this coefficient is significantly higher than optimal in all three countries. Therefore, while keeping the wage fund in balance with fixed capital costs, investments in the knowledge economy and human capital appear to be the preferred areas for the efficient allocation of oil revenues.

Keywords: natural resources; human capital; CES production function; Marquardt method (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:15:y:2023:i:14:p:10837-:d:1191042

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