education, investment, natural resources, education, investment, and economic growth thorvaldur...
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Natural Resources, Education, Education, Investment,Investment, and Economic GrowthThorvaldur Gylfason
OverviewOverview
Document the inverse relationship between natural resource abundance and economic growth across countries since 1965
Discuss five channels of transmission from abundant natural resources to slow economic growth
Stress education and investment
Background: A Background: A quick look at OPECquick look at OPEC
Nigeria has been stagnant since independence in 1960: 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 abundanceConfirms results based on other measures
r = -0.51
r = Spearman’s rank correlation
Economic growth and natural capital again
85 countries85 countries
y = -0,114x + 0,0713
R2 = 0,3902
-8
-6
-4
-2
0
2
4
6
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-1
99
8, a
dju
ste
d f
or
init
ial
inc
om
e (
%)
An 8-9 percentage point increase in the natural capital share goes along with a decrease in per capita growth by 1% per year.
r = -0.61
What if we What if we adjust the adjust the growth growth figures for figures for initial initial income?income?
Five channels of Five channels of transmissiontransmission1. The Dutch disease
Exchange rates, wages, volatilityHurts level or composition of exports
2. Rent seekingProtectionism, cronyism, corruption
3. OverconfidencePoor quality of policies and institutions
4. Neglect of educationeducation5. Too little investment
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.
Education and Education and natural capitalnatural capital
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
1
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
r = -0.32
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
r = -0.57
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
r = -0.66
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 point increase in the secondary enrolment rate goes along with an increase in per capita growth by 1% per year.
86 countries86 countries
r = 0.53
Economic growth and education again
87 countries87 countries
r = 0.53 y = 0,0377x - 2,9036
R2 = 0,3424
-6
-4
-2
0
2
4
6
0 20 40 60 80 100 120
Gross secondary-school enrolment 1980-1998 (%)
Gro
wth
of
GN
P p
er
ca
pit
a, a
dju
ste
d f
or
init
ial i
nc
om
e
19
65
-19
98
(%
)
A 30 point increase in the secondary enrolment rate goes along with an increase in per capita growth by 1% per year.
Summary of Summary of results onresults on educationeducation
We have seen that, across countries:1. Economic growth varies directly with
education2. Three different measures of
education inputs, outcomes, and participation are all inversely related to natural resource abundance
3. Economic growth varies inversely with natural resource abundance
Regression results: Regression results: Growth and Growth and educationeducation
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 resultsresultsTotal effect is -0.06 + (-0.94)·0.04 -0.10
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
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
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)
From human to From human to physical capitalphysical capital
Natural capital seems to crowd out human capital
Does natural capital also crowd out physical capital? What is the evidence?
How about social capital? Consider the relationship between
natural capital and corruption
2 Joint work with Gylfi Zoega
Natural Capital and Corruption
0
1
2
3
4
5
6
7
8
9
10
0 5 10 15 20 25
Share of natural capital in national wealth (%)
Cor
rupt
ion
inde
x
New Zealand
Abundant Abundant natural natural resources resources appear to appear to go along go along withwith corruptiocorruptionn
Investment Investment and and natural capitalnatural capital
8855 countries countries
y = -0,2135x + 22,925
R2 = 0,1598
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
19
65
-19
98
(%
of
GN
P)
r = -0.37
A ten point increase in the natural capital share goes along with a decrease in investment by 2% of GDP.
Economic growth Economic growth andand investment investment
85 countries85 countries
y = 0,2071x - 5,4956
R2 = 0,3676
-8
-6
-4
-2
0
2
4
6
0 10 20 30 40 50
Gross domestic investment 1965-1998 (% of GNP)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-1
99
8, a
dju
ste
d f
or
init
ial
inc
om
e (
%)
A five point increase in the natural capital share goes along with an increase in per capita growth by 1%.
r = 0.63
From gross From gross investment to investment to genuine savinggenuine saving
Gross investment does not take qualityquality into account
Genuine domestic savingGenuine domestic saving is adjusted for quality, and is defined asGross domestic saving minusDepreciation of physical capital plusExpenditure on education minusDepreciation of natural capital
Energy, minerals, forests, carbon dioxide
Genuine saving Genuine saving and natural capitaland natural capital
85 countries85 countries
y = -0,4123x + 12,05
R2 = 0,2476
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Ge
nu
ine
do
me
sti
c s
avi
ng
19
70
-19
98
(%
of
GD
P)
A ten point increase in the natural capital share goes along with a fall in genuine saving by 4% of GDP.
r = -0.54
Economic growth Economic growth andand genuine saving genuine saving
85 countries85 countries
y = 0,151x - 2,3624
R2 = 0,4687
-8
-6
-4
-2
0
2
4
6
-30 -20 -10 0 10 20 30
Genuine domestic saving 1970-1998 (% of GDP)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-1
99
8, a
dju
ste
d f
or
init
ial
inc
om
e (
%)
A 6-7 point increase in the genuine saving rate goes along with an increase in per capita growth by 1% of GDP.
r = 0.69
Summary of Summary of results onresults on investmentinvestment
We have seen that, across countries:1. Economic growth varies directly
with gross investment and genuine saving
2. Gross investment and genuine saving are both inversely related to natural resource abundance
3. Economic growth varies inversely with natural resource abundance
Regression results: Regression results: Growth and Growth and investmentinvestment
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
RecursivRecursive e systemsystem
Reduced Reduced formform
DependenDependent variablet variable
ConstanConstantt
Natural Natural capitalcapital
Enrol-Enrol-ment ment raterate
Invest-Invest-mentment
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
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 incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Direct effect of natural capital on growth is -0.06
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 incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Indirect effect through educationeducation is -0.75·0.05 -0.04
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 incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Indirect effect through investmentinvestment is -0.20·0.10 = -0.02
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 incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Total effect is -0.06 + (-0.75)·0.05 + (-0.20)·0.10 -0.12
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 incomincomee
RR22
Economic Economic growthgrowth
10.110.1
(6.0)(6.0)-0.06-0.06
(4.6)(4.6)0.050.05
(5.5)(5.5)0.100.10
(3.5)(3.5)-1.54-1.54
(7.3)(7.3)0.60.677
Enrolment Enrolment raterate
-103.7-103.7
(7.5)(7.5)-0.75-0.75
(4.2)(4.2)19.919.9
(12.4)(12.4)0.70.722
InvestmeInvestmentnt
22.522.5
(29.3)(29.3)-0.20-0.20
(4.1)(4.1)0.10.166
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Total effect is -0.06 + (-0.75)·0.05 + (-0.20)·0.10 -0.12
Regression results: Regression results: Growth and Growth and genuine genuine savingsaving
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
GenuinGenuine e savingsaving
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
12.712.7
(10.0)(10.0)-0.06-0.06
(4.4)(4.4)0.050.05
(6.0)(6.0)0.080.08
(5.0)(5.0)-1.69-1.69
(9.1)(9.1)0.70.711
Enrolment Enrolment raterate
-90.4-90.4
(6.3)(6.3)-0.82-0.82
(4.6)(4.6)18.418.4
(10.8)(10.8)0.70.722
Genuine Genuine savingsaving
12.012.0
(9.7)(9.7)-0.41-0.41
(5.3)(5.3)0.20.255
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
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
GenuinGenuine e savingsaving
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
12.712.7
(10.0)(10.0)-0.06-0.06
(4.4)(4.4)0.050.05
(6.0)(6.0)0.080.08
(5.0)(5.0)-1.69-1.69
(9.1)(9.1)0.70.711
Enrolment Enrolment raterate
-90.4-90.4
(6.3)(6.3)-0.82-0.82
(4.6)(4.6)18.418.4
(10.8)(10.8)0.70.722
Genuine Genuine savingsaving
12.012.0
(9.7)(9.7)-0.41-0.41
(5.3)(5.3)0.20.255
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Total effect is -0.06 + (-0.82)·0.05 + (-0.41)·0.08 -0.13
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
GenuinGenuine e savingsaving
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
12.712.7
(10.0)(10.0)-0.06-0.06
(4.4)(4.4)0.050.05
(6.0)(6.0)0.080.08
(5.0)(5.0)-1.69-1.69
(9.1)(9.1)0.70.711
Enrolment Enrolment raterate
-90.4-90.4
(6.3)(6.3)-0.82-0.82
(4.6)(4.6)18.418.4
(10.8)(10.8)0.70.722
Genuine Genuine savingsaving
12.012.0
(9.7)(9.7)-0.41-0.41
(5.3)(5.3)0.20.255
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Total effect is -0.06 + (-0.82)·0.05 + (-0.41)·0.08 -0.13
Gross savingGross saving vs. vs. genuine savinggenuine saving
What part of the difference between gross investment and genuine saving matters most for growth?
The current account! The current account! Gross domestic saving (i.e., gross
domestic investment minus the current account) is closely related to economic growth
Gross saving Gross saving and and natural capitalnatural capital
85 countries85 countries
y = -0.4174x + 21.7
R2 = 0.2187
-15
-10
-5
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60
Share of natural capital in national wealth 1994 (%)
Gro
ss
do
me
sti
c s
av
ing
19
70
-19
98
(%
of
GD
P)
A ten point increase in the natural capital share goes along with a decrease in gross saving by 4% of GDP.
r = -0.47
Economic growth Economic growth andand gross saving gross saving
85 countries85 countries
y = 0,1504x - 3,7951
R2 = 0,54
-6
-4
-2
0
2
4
6
-20 -10 0 10 20 30 40
Gross domestic saving 1970-1998 (% of GDP)
Gro
wth
of
GN
P p
er
ca
pit
a 1
96
5-1
99
8, a
dju
ste
d f
or
init
ial
inc
om
e (
%)
A 6-7 point increase in the gross saving rate goes along with an increase in per capita growth by 1% of GDP.
r = 0.73
Summary of Summary of results onresults on gross gross savingsaving
Gross saving has slightly more explanatory power in the growth equation than either gross investment or genuine saving
This means that current account deficits are not good for growthWhen investment and current account
deficits enter separately, the coefficients are almost equal but with opposite signs
Regression results: Regression results: Growth and Growth and gross savinggross saving
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
Gross Gross savingsaving
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
11.311.3
(9.1)(9.1)-0.06-0.06
(4.9)(4.9)0.040.04
(5.4)(5.4)0.090.09
(6.4)(6.4)-1.60-1.60
(9.1)(9.1)0.70.744
Enrolment Enrolment raterate
-89.4-89.4
(6.3)(6.3)-0.82-0.82
(4.6)(4.6)18.218.2
(11.0)(11.0)0.70.722
Gross Gross savingsaving
21.721.7
(15.9)(15.9)-0.42-0.42
(4.9)(4.9)0.20.222
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
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
Gross Gross savingsaving
Initial Initial incomincomee
RR22
Economic Economic growthgrowth
11.311.3
(9.1)(9.1)-0.06-0.06
(4.9)(4.9)0.040.04
(5.4)(5.4)0.090.09
(6.4)(6.4)-1.60-1.60
(9.1)(9.1)0.70.744
Enrolment Enrolment raterate
-89.4-89.4
(6.3)(6.3)-0.82-0.82
(4.6)(4.6)18.218.2
(11.0)(11.0)0.70.722
Gross Gross savingsaving
21.721.7
(15.9)(15.9)-0.42-0.42
(4.9)(4.9)0.20.222
Economic Economic growthgrowth
7.297.29
(4.8)(4.8)-0.12-0.12
(6.7)(6.7)-0.58-0.58
(3.2)(3.2)0.30.355
Total effect is -0.06 + (-0.82)·0.04 + (-0.42)·0.09 -0.13
ConclusionConclusion
Natural resources bring risksNatural resources bring risksToo many people tend to become Too many people tend to become
stuck in low-skill, low-tech intensive stuck in low-skill, low-tech 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, education, need for good policies, education, and investmentand investment
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 mistake likely to make this mistake
ConclusionConclusion
The
End
The
EndNatural capitalNatural capital appears to crowd appears to crowd
out out physicalphysical as well as as well as human human capitalcapital
Empirical evidence from 85 Empirical evidence from 85 countries in 1965-1998 suggests countries in 1965-1998 suggests that about a half of the total that about a half of the total effect of natural capital on effect of natural capital on growth can be ascribed to less growth can be ascribed to less education and less investmenteducation and less investment
Reinforces the case for Reinforces the case for educationeducation and and investmentinvestment as as engines of engines of growthgrowth
A digression on A 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