education natural resources, education, and economic development thorvaldur gylfason

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


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.


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


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.


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


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.


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.


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


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



ConstanConstantt





RR22


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


-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


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




ConstanConstantt





RR22


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


-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


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




ConstanConstantt





RR22


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


-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


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




ConstanConstantt





RR22


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


-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


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


Regression Regression resultsresults


ConstanConstantt





RR22


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


-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


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


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


Gro

ss

do

me

sti

c in

ves

tme

nt

1965

-199

8 (%

of

GD

P)


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


y = -0,4065x + 0,6941

R2 = 0,1526

-40

-30

-20

-10

0

10

20

30

40

0 10 20 30 40 50 60


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


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%.


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. .

education natural resources, education, and economic development thorvaldur gylfason

Documents

education natural resources

neglect of education

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thailand slide

institutions education

abundant natural resources

existence of natural