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

Abstract

Previous research has found that in Indonesia, a resource giant in South East Asia, resource dependence is positively associated with economic growth, contrary to a 'resource curse' hypothesis. We test four potential causal mechanisms for this positive effect: spill overs to manufacturing, higher education provision, improvements in institutional quality, and investment in public capital. We follow 390 districts within Indonesia from 2006 to 2015, using four alternative measures of resource dependence, and instrumenting for their potential endogeneity. We first confirm a positive overall effect of resource dependence on real per capita Gross Regional Domestic Product. We then test the extent to which resource dependence positively affects manufacturing, education, public investment, and district institutional quality. We finally test the extent to which these factors contribute to growth. We find that resource dependence aids growth in part by raising measures of district institutional quality. Resource dependence also raises net high school enrolment rates, though we do not find that this in turn raises growth. Conversely, while higher capital spending by districts raises growth, we find no evidence that this share is affected by resource dependence. In auxiliary analysis, we find little support for the hypothesis that resource dependence benefits growth more (or only) for districts that begin with higher institutional quality.

The effects of natural resources on human capital accumulation: A literature survey

“…The one within-country study, we find with positive dependence effects is by Hilmawan and Clark (2021). They follow 390 Indonesian districts between 2006 and 2015 to estimate the effect of four resource dependence measures on high school enrollment rates.…”

“…Among the four studies that address potential endogeneity and omitted‐variables, Alvarez and Vergara (2016) and Douglas and Walker (2017) find negative effects on tertiary or enrolments or completion rates, whereas Emery et al. (2012) find no long‐run effects on highest achievement, and Hilmawan and Clark (2021) find a positive effect on high school enrolment rates. Hilmawan and Clark's positive effect on enrolment rates, in contrast to negative findings on completion rates above, may again provide suggestive evidence that resource rents fund a greater supply of schools, even as they weaken demand that reduces completed years.…”

“…Oil rent as share of GDP Ebeke et al (2015); ; Javadi et al (2017); Philippot (2010) Oil revenue Erdoğan et al (2020) and Mousavi (2019) Share of oil and gas fiscal revenues in total fiscal revenues Hilmawan and Clark (2021) Petroleum value added Mousavi et al (2019) Petro rents as a share of GDP Weber (2014) Sum of the value of oil and gas revenues James (2017) Hydrocarbon rent as a percentage of GDP (oil, gas, and coal)…”

“…Finally, the positive effects of resources on human capital in some within-country studies surveyed here provide evidence of helpful resource rent redistribution policies. Agüero et al ( 2017) find Peru's mineral rents taxation and redistribution policies increase the quality of school infrastructure and teacher qualifications, while Hilmawan and Clark (2021) find that mineral rent redistribution to districts of resource origin is positively associated with high school enrolment rates. With more general growth in mind, Larsen (2006) advocates oil revenue policies adopted by Norway, where the oil sector is separated from the rest of the economy, and domestic nonoil industries are shielded.…”

Innovative Strategies in agricultural production units: Knowledge in development of new services and value chains

“…Agriculture has a greater participation in the GDP of developing countries (Hilmawan and Clark, 2021) (Fig. 2), but this has not allowed them to eradicate problems such as hunger, poverty, or violence (Sánchez-Villegas et al, 2021;Perez-Ruiz et al, 2020).…”