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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Typescript prepared by Ayesha Chari. Terms of use: Documents inThe United Nations University World Institute for Development Economics Research provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.The Institute is funded through income from an endowment fund with additional contributions to its work programme from Denmark, Finland, Sweden, and the United Kingdom. Katajanokanlaituri 6 B, 00160 Helsinki, FinlandThe views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Abstract:The general policy prescription for resource-rich countries is that, for sustainable consumption, a greater percentage of the windfall from resource rents should be channelled into accumulating foreign assets such as a sovereign public fund as done in Norway and other developed but resource-rich countries. This might not be a correct policy prescription for resource-rich sub-Saharan African (SSA) countries, where public capital is very low to support the needed economic growth. In such countries, rents from resources serve as opportunity to scale-up the needed public capital. Using panel data for the period 1990-2013, we find in line with the scaling-up hypothesis that resource rents significantly increase public investment in SSA and that this tends to depend on the quality of political institutions. We also find evidence of a positive effect of public investment on economic growth, which also depends on the level of resource rents. Using some of the components of public investment, such as health and education expenditure, we find a negative effect of resource rents, suggesting among other things that public spending of resource rents is directed more to other infrastructure investments.

Natural Resources Revenue, Fiscal Policy and Economic Growth: Panel Data Analysis for Sub-Saharan Africa Countries

“…Among the many studies on the effect of natural resource revenues on growth there are those (such as Sachs & Warner, 1995) who have indicated that these incomes have not been used for the economic development of developing countries. While other researches (such as Gylfason &Zoega, 2002 andKarimu et al, 2016) have found that natural resource revenues contribute to the economic growth of developing countries. However, all these researches did not investigate whether the natural resources rents have some impact on fiscal policy and capital formation of countries rich in natural resources.…”

“…However, in other hands, some studies found a positive effect of natural resources abundance on economic growth. For instance, Gylfason & Zoega (2002) and Karimu et al (2016) found a positive effect of natural resources rents on public investment which leads to economic growth. In order to provide the literature review about natural resources abundance, the fiscal policy and economic growth we create a table that shows theses empirical studies by date & authors, variables, methods and findings.…”

Is Oil Rent a Curse for Health in Africa?

“…Their results suggest that in resource-rich developing countries, governments in resource-rich developing countries give little capital investment in priority sectors such as health, the same results were obtained by karimu and al. [14] and, Turan and Yankkaya [15].…”

Resource dependence and the causes of local economic growth: An empirical investigation*

“…(This effect was not robust, however, to the addition of controls for initial income.) More recently, Karimu et al (2017) find resource rents (as a share of GDP) significantly improve public investment, though the strength of effect depends on institutional quality.…”

“…Channels proposed for the effect of resource dependence on a country's growth (historically developed for a resource curse) have included 1) crowding out of non-resource tradeable sectors that better aid growth in the long run, such as manufacturing (the "Dutch disease"), 2) depressing demand for education, 3) depressing institutional quality, and 4) providing perverse incentives regarding the quality of public spending (Bhattacharyya and Collier (2014); Collier and Goderis (2009); Karimu et al (2017)).…”