Wednesday, April 29, 2015

New Research: Resource curse and public spending on health and education

Two researchers from Belgium have studied in more detail the effect of natural resource windfalls on public spending, education in one paper, public health in another.

Nathalie Francken [] (University of Antwerps) and
Lara Cockx (LICOS, Catholic University Leuven)

Extending the concept of the resource curse: Natural resources and public spending on health

This paper extends the concept of the resource curse by studying whether and through which transmission channels natural resource wealth affects social spending. Even though the availability of vast natural capital reserves has commonly been linked to the neglect of human development, most of the literature has continued to focus on economic performance. This paper is the first to empirically investigate the link between natural resource wealth and public health expenditures in light of the hypothesis that resource wealth as a source of unearned state income enhances state autonomy and increases volatility, which leads to policies that fail to prioritize human development. Using a large panel dataset of world countries covering the period from 1995 to 2009, we find a robust, significant inverse relationship between natural resource dependence, and even abundance, and public health spending over time. The effect remains significant after controlling for state autonomy, volatility, and other factors. These findings have implications for national authorities as well as the extractive industry. Governments should be made accountable for natural resource wealth and correct taxation could provide additional resources, earmarked for health. The extractive industry could increase their investments in sustainable Corporate Social Responsibility operations, specifically in the health sector.
Published in 2014 in Ecological Economics []

And a new paper,

Is there a Natural Resource Curse on Education Spending?

This paper contributes to a new line of research in the resource curse literature that addresses the link between resource wealth and fiscal policy by empirically investigating the relationship between natural resource dependence and public education spending. Using a large panel dataset of world countries covering the period from 1995 to 2009, we find robust evidence of a public education spending resource curse. The adverse effect of natural resource dependence on public education expenditures relative to GDP remains significant after controlling for additional covariates such as income, aid, and the age structure of the population. Our results further confirm the existence of indirect effects of resource dependence through a deterioration of government account- ability and the crowding-out of more skilled-labour intensive sectors in the economy. Furthermore, our findings indicate that the resource curse effect on the government prioritization of education mainly stems from point-source natural resources. Our results have important implications for managing natural resource wealth in developing countries, as they could achieve particularly high returns by investing resource revenues in public goods such as education. While this paper underlines the importance of institutions and government accountability, our results also raise questions on the role of the extractives industry. The oil, gas and mining industry should consider increasing funding for education through Corporate Social Responsibility initiatives in this sector or through other innovative channels of development finance.
Available as working paper here []

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