Investigating the Relationship between Endowment of Oil Resources and Human Development in Selected Oil-exporting Countries

اقتصاد و توسعه منطقه ای

Article 5, Volume 22, Issue 10, March 2016, Pages 140-161   

Document Type: مقالات پژوهشی

DOI: 10.22067/erd.v22i10.43079

Authors

Mohammad Salimifar^* ; Mahmoud Hoshmand; Mehdi Behname; Nava Ramezanian

Ferdowsi University of Mashhad

Abstract

Introduction:
It was often believed that countries with natural resource abundance would undergo the process of development with a more accelerated pace in comparison to other countries. The experimental results, however, demonstrate a higher rate of success for countries which lack the said resources. The paradoxical effects of the possession, or a lack there of, natural resources on different countries has led scientists to study the correlation between the abundance of natural resources and various aspects of development. To that end, the effects of possessing abundant oil resources on human development were studied for a selection of 20 oil-exporting countries between 2002 and 2012.

Theoretical Framework:
In the economic literature on the resource curse hypothesis (RCH), there are three general views:
One. On one hand, it would appear that the abundance of natural resources should act as a driving force and procure an accelerated pace of development and growth for the possessing countries. The reason for such an expectation is the access these countries have to resources that can bankroll their goals.
Two. On the other hand, most countries with notable natural resources, especially Oil dependent ones, have not fared well in way of achieving development in recent years, whereas a considerable number of countries that have achieved growth and development possess few natural resources.
Three. Passing judgments on the role of natural resources would have been rather easy if all the collected data was consistent with one of the above-mentioned observations. The problem escalates in severity because some countries with significant natural wealth also rank very high in terms of sustainable economic growth and human development.
Since 65 countries in the world have resource-based economies; the question of why having natural resources has led some countries to growth and human development, and others quite the other way is of utmost importance.

Methodology:
Based on the theoretical bases and previous studies, the quantitative model used in this research is specified as follows:
HDIit= αit + β OGSit + γ HPCit + θ GDRit + δ VAIit +ɛit
t= 2002, 2003… 2012
In this model, the dependent variable is the Human Development Index (HDI), and the OGS (main variable) shows a country's dependency upon oil resources. HPC, GDR, and VAI are the control variables in this model and they represent the growth rates of per capita health expenses, gross domestic product growth and the degree of Voice and Accountability, respectively.
The dataset for this study consists of the oil-exporting countries whose share of revenues from oil exports makes at least 50% of their total export revenues, which include a total of 20 countries from Middle East, Central Asia, Africa and North and South America (unbalanced data).
The research methodology for this study is analytic-descriptive, and the econometrics approach is as follows:
According to Levin-Lin-Chu test, all variables are stationary. To select the most appropriate designed estimation model, four tests were used, namely Chow, Hausman, Breusch-Pagan and F-ANNOVA, which their results indicated that the model should be estimated using panel data approach with fixed effects. Also, autocorrelation among error components, collinearity and heteroscedasticity are henceforth examined. Consequently, the HPC variable must be taken out of the model. But, In order to prevent from specification bias, important dummy variable of financial crisis should be added. Moreover, the model must be estimated using AR (1) with Estimated Generalized Least Square (EGLS) method.
The final model is defined as follows:
HDIit= αit + β OGSit + γ DUit + θ GDRit + δ VAIit + λ AR (1) +ɛit
t= 2002, 2003… 2012


Results & Discussion:
According to estimations, there is a significant and positive relationship between the OGS and HDI in the studied countries between 2002 and 2012. This result is consistent with works of Gylfason (2001), Lederman and Maloney (2008) and Pineda and Rodriguez (2010). In addition, it is predicted that GDP leads to a higher level of HDI in the country.
The rate of the GDR reflects the fact that a 1% increase in the rate of economic growth increases the human development index by 0.001 units. Managing resources export revenues in different levels of human development leads to gross domestic product (GDP) having a more significant effect on HDI. Thus, the resource curse hypothesis proposed by Sachs and Warner (1995 and 1997) and Gylfason (1999) cannot be confirmed.
Also, the dummy variable has had a negative impact on the level of HDI for these countries, a result that is also consistent with the theoretical bases of the study. However, the voice and accountability variable, has no significant effect on the human development of oil dependent countries in this model.

Conclusions & Suggestions:
The RCH cannot be approved. Because, first, despite the fact that most of selected countries with abundant natural resources have set a trend in terms of not being successful in achieving development, some of these countries, such as Botswana, Indonesia, Chile, Norway, Australia, Canada and Malaysia have not followed the trend.
Second, it is unclear whether the resource curse and its different aspects are related to a variety of natural resources or just one type.
Third, some studies have reported observations that disprove the resource curse hypothesis, although the same indicators were used in order to present the abundance of natural resources in the studied subjects.
Moreover, when each components of HDI was analysed, the outcomes showed that the effect of oil resources revenues on Human Development Index can be positive (especially on non-income components such as education and life expectancy).
Consequently, development of health education, such as educating the female members regarding their roles in the upbringing of children, and the prevention of contagious diseases in order to improve the human development index is needed. Also, allocating a greater portion of the resources’ revenues to investment in human and physical resources in order to accelerate economic growth is highly recommended.

Keywords

Abundance of Natural Resources; Oil Revenues; Human development; Oil-rich Countries; Panel Data

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