Do high human capital and strong institutions make oil-rich developing countries immune to the oil curse?

This paper advances research in the resource curse literature in several directions. Firstly, using different measures of oil dependence and abundance, it investigates the validity of the oil curse hypothesis in energy-rich developing countries. Secondly, the paper studies the impact of human capital, institutional quality, and trade openness on the growth of these countries. Thirdly, it examines the interaction effect of human capital and oil dependence/abundance on the growth of oil-rich developing counties. Fourthly, we estimate a set of panel data models by the Generalized Method of Moments (GMM) to address the endogeneity problem. The estimation results confirm the oil curse hypothesis. Furthermore, our findings underscore the significant role of higher human capital, better institutional quality, and trade openness in boosting economic growth. These results are robust to the way the quality of institutions is measured. Moreover, we find a threshold level for human capital above which the oil curse vanishes. Our finding, hence, highlights the crucial role of human capital in offsetting the adverse effect of oil abundance/dependence on output growth. The fact that poor quality of human capital and weak institutions hinder economic growth has important policy implications for social planners and policymakers in oil-rich developing countries.

Automated summary

This study examines various factors affecting economic growth in oil-rich developing countries, finding that human capital and institutional quality play significant roles, and the existence of a human capital threshold may eliminate the oil curse.