Natural Resources, Incentives and Human Capital: Reinterpreting the Curse

Salim Araji and Hamid Mohtadi ()

No 892, Working Papers from Economic Research Forum

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.

Pages: 29
Date: 2014-12, Revised 2014-12
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Citations: View citations in EconPapers (4)

Published by The Economic Research Forum (ERF)

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Journal Article: Natural resources, incentives and human capital: reinterpreting the curse (2018)
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