The Relationship Between the Resource Curse and Genuine Savings: Empirical Evidence

Abstract

The objective of this paper is to contribute to research on the determinants of Genuine Savings (GS) by investigating its relationship to the Resource Curse (RC). The substantial empirical evidence confirming that resource-abundant countries are often characterised by slower economic growth can be traced back to the argument that natural resources generate rents independent of economic performance. Recent studies show a negative relation of this so-called RC to GS, a concept that is meant to measure sustainability by considering reinvestments of exactly these rents from natural capital into physical and human capital. Our cross-country analysis examines the influence of determinants and transmission channels identified to cause the RC on GS and its components. Results show that factors leading to the RC are also useful explanatory variables for GS: A clear influence of the share of primary exports in GNI as well as of trade, consumption, quality of institutions, etc. is found. Via the migration of employees and appreciation of the exchange rate, Dutch disease is used to show how the RC works through the different types of capital that make up GS. As a side effect, this combination of dependent variables can explain the RC more comprehensively than GDP growth.

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