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

Abstract

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.

Natural Resource Revenues and Public Investment in Resource‐rich Economies in Sub‐Saharan Africa

“…Our study is most similar to those of Cockx and Francken (2014) and Bhattacharyya and Collier (2013) who investigated, respectively, the relationship between resource dependence/abundance and public capital spending on health and resource rents. This paper, however, differs from these two studies by focusing solely on SSA countries owing to the peculiarities of the region in terms of management of natural resources.…”

“…Additionally, we also considered aggregated and disaggregated data by analysing the impact of resource rents on total public investment as well as on health and education. We extended the work of Cockx and Francken (2014) by including both aggregate public investment and education in our analysis, whereas in the case of Bhattacharyya and Collier (2013) we extended it by including both health and education and a large number of SSA countries in the analysis. However, owing to data constraints, public investment in infrastructure is omitted from the current study, although its importance is acknowledged, especially in the context of SSA where it is one of the major constraints on a firm's productivity and where the power sector is a major contributor to the region's infrastructure deficit.…”

“…This paper, however, differs from these two studies by focusing solely on SSA countries owing to the peculiarities of the region in terms of management of natural resources. Bhattacharyya and Collier (2013) included only three African countries in their analysis, whereas Cockx and Francken (2014) considered a world sample without a deeper analysis of SSA. Moreover, Cockx and Francken (2014) only focused on the relationship between resource dependence/abundance and health spending, which is a narrow measure of public investment.…”

“…Bhattacharyya and Collier (2013) included only three African countries in their analysis, whereas Cockx and Francken (2014) considered a world sample without a deeper analysis of SSA. Moreover, Cockx and Francken (2014) only focused on the relationship between resource dependence/abundance and health spending, which is a narrow measure of public investment. Further, neither of the two studies analysed the interactive effect of resource rents and public investment (or its components) on growth, which this paper has considered.…”

Oil and the ‘new wars’: another look at the resource curse using alternative data

“…Resource-wealthy states are also accused of providing lower levels of public goods in terms of education and health, measured in terms of health outcomes and as health spending (Cockx and Francken 2014;Gylfason 2001;de Soysa and Gizelis 2013). Finally, resource wealth generates weak institutions (anarchic institutions) where groups organize armed violence for capturing rents, making a resource-dependent state prone to violence because either state institutions are too weak to monopolize violence or because the resources themselves invite looting, which in turn finances costly rebellion (Collier et al 2003;Fearon and Laitin 2001;Ross 2004;de Soysa 2002).…”