Natural resource rents and capital accumulation nexus: do resource rents raise public human and physical capital expenditures?

Abstract

This paper examines the effects of total, mineral, natural gas, and oil rents on the public total, education, health, and infrastructure expenditures using the dynamic panel estimation methods and data for more than 100 countries for the 1980-2015 period. Our results indicate that total resource rents do not have a significant impact on the public total and infrastructure expenditures. However, they provide a robust evidence for the adverse effect of resource rents on the public education and health expenditures. Our results lend a substantial evidence for the conclusion that the notorious resource curse can be also explained by its adverse effect on the human capital accumulation. We then test whether the democracy level matters in investigating the effects of resource rents on the public expenditures. Interestingly, we find that total resource rents exert a negative impact on the education expenditures only in autocratic countries. These results clearly indicate that policy makers should take necessary steps to remove the adverse effects of resource rents on the public education and health expenditures to increase human capital formation.