education natural resources, education, and economic development thorvaldur gylfason
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Natural Resources, EducationEducation, and Economic Development
Thorvaldur Gylfason
OverviewOverview
Document the inverse relationship between natural resource abundance and economic growth across countries since 1965
Discuss four channels of transmission from abundant natural resources to slow economic growth
Stress the importance of education
Background: A Background: A quick look at OPECquick look at OPEC
Nigeria has been stagnant since independence in 1966: No growth
Per capita growth 1965-1998Iran and Venezuela: -1% per yearLibya: -2%Iraq and Kuwait: -3%Qatar: -6%
Why?
Background: Background: A A quick look at OPECquick look at OPEC
King Faisal of Saudi Arabia (1964-1975) would hardly have been surprised:
“In one generation we went from riding camels to riding Cadillacs. The way we are wasting money, I fear the next generation will be riding camels again.”
Increasing Increasing awareness thatawareness that oil oil brings risksbrings risks
If ... oil revenue is managed well, it can educate, heal and provide jobs for ... the people. But oil brings risks as well as benefits. Rarely have developing countries used oil money to improve the lives of the majority of citizens or bring steady economic growth. More often, oil revenues have caused crippling economic distortions and been spent on showy projects, weapons and Paris shopping trips for government officials.
New York Times, 1 August 2000.
Is OPEC an Is OPEC an exception?exception?
No, this seems to be a general pattern.
Of 65 natural resource abundant countries 1970-1998, only four hadInvestment of more than 25% of GDPPer capita GNP growth of more than
4% per year
They are:Botswana, Indonesia, Malaysia, Thailand
Economic growth and natural capital
y = -0,0946x + 2,4894
R2 = 0,2805
-4
-2
0
2
4
6
8
10
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
An
nu
al g
row
th o
f G
NP
pe
r c
ap
ita
19
65
-19
98
(%
)A ten percentage point increase in the natural capital share goes along with a decrease in per capita growth by nearly 1% per year.
86 countries86 countries
What is the empirical evidence?
A new measure of natural resource abundance.Confirms results based on other measures.
Four channels of Four channels of transmissiontransmission
1. The Dutch diseaseExchange rates, wages, volatility
Hurts level or composition of exports
2. Rent seekingProtectionism, corruption
3. OverconfidencePoor quality of policies and institutions
4. Neglect of educationeducation
Resource Resource abundance and abundance and policy failurepolicy failure
The problem is not the existence of natural wealth ...but rather the failure to avert the
dangers that follow the gifts of nature.
Norway is a success story.Government takes in 80% of oil rent and
invests it mostly in foreign securities.No signs of rent seeking,
overconfidence, or neglect of education
College enrolment has risen from 26% in 1970 to 62% in 1997.
More on educationMore on education
Now consider the relationship between natural resource abundance and three different measures of education inputs, outcomes, and participation:1. Public expenditure on education2. Expected years of schooling for
girls3. Secondary-school enrolment
Expenditure on education and natural capital y = -0,0561x + 4,9044
R2 = 0,1247
0
1
2
3
4
5
6
7
8
9
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Pu
blic
ex
pe
nd
itu
re o
n e
du
ca
tio
n 1
98
0-1
99
7 (
% o
f G
NP
)
An 18 percentage point increase in the natural capital share is associated with a decrease in public expenditure on education by 1% of GNP.
90 countries90 countries
Years of schooling and natural capital
y = -0,2186x + 13,011
R2 = 0,3317
0
2
4
6
8
10
12
14
16
18
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Ex
pe
cte
d y
ea
rs o
f s
ch
oo
ling
fo
r fe
ma
les
19
80
-19
97
A five percentage point increase in the natural capital share is associated with a decrease by one year in the schooling that girls can expect.
52 countries52 countries
Secondary enrolment and natural capital
y = -1,8414x + 72,705
R2 = 0,3504
-40
-20
0
20
40
60
80
100
120
140
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Gro
ss
se
co
nd
ary
-sc
ho
ol e
nro
lme
nt
19
80
-19
97
(%
)
A five percentage point increase in the natural capital share goes along with a decrease in secondary-school enrolment by almost 10 percentage points.
91 countries91 countries
Economic growth and education
y = 0,0238x + 0,1602
R2 = 0,1674
-4
-2
0
2
4
6
8
10
0 20 40 60 80 100 120 140
Secondary-school enrolment 1980-1997 (%)
An
nu
al g
row
th o
f G
NP
pe
r c
ap
ita
19
65
-19
98
(%
)A 40 percentage point increase in the secondary enrolment rate goes along with an increase in per capita growth by one percentage point per year.
86 countries86 countries
Summary of resultsSummary of results
We have seen that, across countries:1. Economic growth varies inversely
with natural resource abundance.2. Three different measures of
education inputs, outcomes, and participation are all inversely related to natural resource abundance.
3. Economic growth varies directly with education.
Regression resultsRegression results
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
RecursivRecursive e systemsystem
Reduced Reduced formform
Regression resultsRegression results
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
Direct effect of natural capital on growth is -0.06
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
Regression resultsRegression results
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
Regression resultsRegression results
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
Indirect effect through education is -0.94·0.04 -0.04
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
Regression resultsRegression results
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
Total effect is -0.06 + (-0.94)·0.04 -0.10
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
Regression Regression resultsresults
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomeincome
RR22
Economic Economic growthgrowth
9.359.35
(6.0)(6.0)-0.06-0.06
(4.3)(4.3)0.040.04
(5.9)(5.9)0.070.07
(3.1)(3.1)-1.40-1.40
(7.0)(7.0)0.60.644
Enrolment Enrolment raterate
-96.5-96.5
(5.4)(5.4)-0.94-0.94
(4.6)(4.6)20.320.3
(9.7)(9.7)0.60.688
Economic Economic growthgrowth
3.873.87
(2.5)(2.5)-0.09-0.09
(5.7)(5.7)0.130.13
(4.5)(4.5)-0.51-0.51
(3.2)(3.2)0.40.499
Total effect is -0.06 + (-0.94)·0.04 -0.10
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
Interpretation of Interpretation of resultsresults
Natural-resource-based industries are generally less high-skill laborhigh-skill labor intensive and less high-quality high-quality capitalcapital intensive than others, and soconfer few external benefits distort comparative advantageimpede learning by doing, technical
advance, and economic growth
A digression on A digression on investmentinvestment
y = -0,2202x + 23,086
R2 = 0,1673
0
5
10
15
20
25
30
35
40
45
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Gro
ss
do
me
sti
c in
ves
tme
nt
1965
-199
8 (%
of
GD
P)
86 countries86 countries
A ten percentage point increase in the natural capital share goes along with a decrease in investment by over 2% of GDP.
A further A further digression on digression on opennessopenness
91 countries91 countries
y = -0,4065x + 0,6941
R2 = 0,1526
-40
-30
-20
-10
0
10
20
30
40
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Ac
tua
l le
ss
pre
dic
ete
d e
xp
ort
s 1
96
5-1
99
8 (
% o
f G
DP
)A ten percentage point increase in the natural capital share goes along with a decrease in openness by 4% of GDP.
Per capita income and natural capital
y = -0,0755x + 9,1635
R2 = 0,4395
6,0
6,5
7,0
7,5
8,0
8,5
9,0
9,5
10,0
10,5
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Lo
ga
rith
m o
f p
pp
-ad
jus
ted
pe
r c
ap
ita
GN
P 1
99
8
Each ten percentage point increase in the natural capital share is associated with a decrease in per capita income by 75%.
90 countries90 countries
MarshallMarshall was right was right
There is no extravagance more There is no extravagance more prejudicial to growth of national prejudicial to growth of national wealth than that wasteful negligence wealth than that wasteful negligence which allows genius that happens to which allows genius that happens to be born of lowly parentage to be born of lowly parentage to expend itself in lowly work. No expend itself in lowly work. No change would conduce so much to a change would conduce so much to a rapid increase of material wealth as rapid increase of material wealth as an improvement in our schools, and an improvement in our schools, and especially those of the middle especially those of the middle grades, provided it be combined with grades, provided it be combined with an extensive system of scholarships, an extensive system of scholarships, which will enable the clever son of a which will enable the clever son of a working man to rise gradually from working man to rise gradually from school to school till he has the best school to school till he has the best theoretical and practical education theoretical and practical education which the age can give.which the age can give.
ALFRED ALFRED MARSHALLMARSHALL
(1920)(1920)
ConclusionConclusion
The
End
The
EndNatural resources bring risks.Natural resources bring risks.
Too many people tend to become Too many people tend to become stuck in low-skill intensive stuck in low-skill intensive industries. industries.
A A false sense of securityfalse sense of security leads leads people to underrate or overlook the people to underrate or overlook the need for good policies and good need for good policies and good education.education.
Awash in easy cash, they Awash in easy cash, they may find may find that education does not paythat education does not pay..
Resource-poor countries are less Resource-poor countries are less likely to make this likely to make this mistakemistake. .
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