Does Investment in Human Capital via Education Stimulate Economic Growth in an Oil-Rich Country? A Case Study of Saudi Arabia

Najla Tharman Almutairi ()
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Najla Tharman Almutairi: King Saud University

Journal of the Knowledge Economy, 2024, vol. 15, issue 1, No 121, 2933-2955

Abstract: Abstract This study seeks to examine the impact on the economic growth of human capital from 1990 to 2019, as measured by education in a country rich in natural resources. In addition, it evaluates both the direct and indirect effects of oil wealth on growth through the human capital channel to explore whether oil resources may hinder the positive impact of human capital investment on economic growth. Using an autoregressive distributed lag (ARDL) model and three educational human capital measures, the empirical findings indicate that both the gross tertiary education enrolment ratio and scholarships, a novel measure employed in this study, are negatively and significantly connected with economic growth. However, average years of schooling have a negative but insignificant relationship with growth. The interactive effect of oil wealth on economic growth via human capital investment is positive and significant, indicating that the presence of oil is a factor fostering this. However, this research shows that the direct relationship between oil wealth and growth is a negative one, confirming the so-called “curse” of such resources that may result from the Dutch disease effect, whereby focusing on resources-based industries create less demand for an educated workforce. This in turn may explain the unexpectedly adverse impact of investment in education on economic growth, despite evident advancement in education following high financial expenditure by the Saudi government. The empirical analysis shone new light on how the availability of natural resources can have a dual impact on human capital and economic growth, in that such resources can be a negative factor in some places and a positive in others. These results suggest there is untapped potential for highly educated people, and strongly emphasize the importance of delivering Vision 2030 to absorb unemployed human capital and increase participation in the labor market, exploiting this population’s potential to promote economic growth.

Keywords: Human capital investment; Economic growth; Education; Saudi economy; Resources curse; ARDL model (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01265-1

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