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To grow or To grow or
not to grow: not to grow:
Why Why institutions institutions
must make a must make a
differencedifference Thorvaldur Gylfason
Why growth rates Why growth rates differdiffer If technology matters for economic
growth, as it must, then … General economic efficiency must
also make a difference for growthEconomic policyEconomic policyInstitutionsInstitutions
Institutions or geography? False contrastFalse contrastThere is room for both, side by sideThere is room for both, side by side
Why Why growth ratesgrowth rates differdiffer
Investm en t
Dem ocracy D ivers if ication
Fertility Education
G row th+
+ +
Political and economic diversification
–
Resource depletion dragDutch diseaseRent seeking
+
Growth and political liberties, 1965-98
Central African Republic
Brazil Democracy Democracy is good for is good for growth:growth: No visible No visible sign that sign that democracy democracy stands in stands in the way of the way of economic economic growthgrowth-8
-6
-4
-2
0
2
4
6
0 2 4 6 8
Index of political liberties 1972-90
Gro
wth
of
GN
P p
er c
apit
a 19
65-9
8, a
dju
sted
fo
r in
itia
l in
com
e (%
per
yea
r)
r = -0.62
Botswana
China
Niger
Venezuela
Korea
85 countries85 countries
r = rank correlation
Central African Republic
Brazil
-8
-6
-4
-2
0
2
4
6
0 2 4 6 8
Index of political liberties 1972-90
Gro
wth
of
GN
P p
er c
apit
a 19
65-9
8, a
dju
sted
fo
r in
itia
l in
com
e (%
per
yea
r)
r = -0.62
Botswana
China
Niger
Venezuela
Korea
Political Political liberty is liberty is good for good for growthgrowthbecause because oppression oppression breeds breeds inefficiencinefficiency,y,and so and so does does corruptioncorruption
Growth and political liberties, 1965-98
Growth and natural capital, 1965-98
-8
-6
-4
-2
0
2
4
6
0 20 40 60
Share of natural capital in national wealth 1994 (%)
Gro
wth
of
GN
P p
er c
apit
a 19
65-1
998,
ad
just
ed
for
init
ial i
nco
me
(%)
An increase in the natural capital share by 8% goes along with a decrease in per capita growth by 1% per year.
r = -0.64
Venezuela
Australia
85 countries85 countries
Recent literatureRecent literatureSix main linkages:
1. Resource depletion drag2. Dutch disease
Hurts level, composition, or volatility of exports
3. Rent seeking Protectionism, corruption, oppression
4. False sense of security Poor quality of policies and institutions
5. Education6. Investment
But Norway
is, so far at
least, an exception
Foreign Foreign capitalcapital
Social Social capitalcapital
Human Human capitalcapital
Real Real capitalcapital
Natural capital Natural capital
tends to crowd tends to crowd
outout
Natural resource abundance and economic structure
Resource poor,resource dependent
(Chad, Mali)
Resource rich,resource dependent
(OPEC)
Resource rich,resource free(Canada, USA)
Resource poor,resource free
(Jordan, Panama)
Reso
urc
e d
ep
en
den
ceR
eso
urc
e d
ep
end
ence
Resource abundanceResource abundance
Dependence hurts growth, even if abundance may help
Hypothesis:
Empirical research Empirical research strategystrategy
Study 85 industrial and developing countries from 1965 to 1998
Look for cross-country patternscross-country patterns in data from the World Bank
Dig deeper through regression analysisregression analysisRecognize interconnections among
several key determinants of growth by estimating a system of simultaneous equations by Seemingly Unrelated Regression method
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression results
RecursivRecursive e systemsystem
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsInvestment is good for growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsEducation is good for
growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsCivil liberties are
good for growth
Index goes from 1 (full civil
liberties) to 7 (negligible civil
liberties)
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsPopulation
growth hurts
growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsConditional
convergenc
e: 2% per year
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsAbundance
is good for
growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsDependence is bad for growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsDependence is bad for growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsDependence is bad for education
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsIndirect effect through education is -0.77·0.02 -0.02
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsDependence is bad for investment
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsIndirect effect through investment is -0.26·0.08 -0.02
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsDependence is bad for liberty
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsIndirect effect through civil liberties is 0.04·(-0.27) -0.01
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsTotal effect is -0.08 + (-0.77)·0.02 + (-0.26)·0.08 + 0.04·(-0.27) -0.13
Liberties and Liberties and
resources both resources both
matter for growthmatter for growth
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsWhat if abundance
is not given?
Total effect is -0.13 + [0.05 + (0.54)·0.02 + (0.16)·0.08 + (-0.05)·(-0.27) 0.09]·wealth per person
African dummy African dummy
adds nothingadds nothing
Note: 85 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
NaturaNatural l capital capital shareshare
Natural Natural capital capital per per personperson
Initial Initial incomeincome
Popu-Popu-lation lation growthgrowth
Civil Civil libertieliberties indexs index
Enrol-Enrol-ment ment raterate
Gross Gross investinvest-ment-ment
RR22
Economic Economic growthgrowth
-0.08-0.08
(5.8)(5.8)0.050.05
(2.7)(2.7)-1.89-1.89
(9.2)(9.2)-0.56-0.56
(3.0)(3.0)-0.27-0.27
(2.5)(2.5)0.020.02
(2.5)(2.5)0.080.08
(3.7)(3.7)0.70.777
Enrolment Enrolment raterate
-0.77-0.77
(4.1)(4.1)0.540.54
(2.2)(2.2)13.0013.00
(5.2)(5.2)-3.82-3.82
(2.5)(2.5)0.70.777
Gross Gross investmeninvestmentt
-0.26-0.26
(4.0)(4.0)0.160.16
(1.8)(1.8)-1.92-1.92
(2.2)(2.2)-0.73-0.73
(1.4)(1.4)0.20.244
Civil Civil libertiesliberties
0.040.04
(4.1)(4.1)-0.05-0.05
(2.9)(2.9)-0.95-0.95
(6.5)(6.5)0.60.655
Regression resultsRegression resultsTotal effect of natural capital on growth is Total effect of natural capital on growth is negative as long as wealth per head is below negative as long as wealth per head is below $150K$150K
What is the What is the upshot?upshot? Growth differentials across countries
can be explained by several different interconnected factorsPrivate initiatives Private initiatives (investment, fertility)(investment, fertility)Public policies Public policies (education)(education) Institutions Institutions (democracy)(democracy)Geography Geography (natural resources)(natural resources)
In particular, institutions survive the presence of geography, and vice versa
Case in point: Case in point: NorwayNorwayThe problem is not the existence of
natural wealth as such ... but rather the failure to avert the
dangers that accompany the gifts of nature
Norway is, so far, a success storyGovernment takes in 80% of oil rent and
invests it mostly in foreign securitiesNo signs of damage to growth potential,
at least not yet
Why Norway has Why Norway has succeeded where OPEC succeeded where OPEC and others failedand others failed
Long tradition of Long tradition of democracydemocracy and and market economymarket economy in Norway in Norway since before the advent of oilsince before the advent of oilLarge-scale rent seeking was Large-scale rent seeking was
averted as oil was defined as a averted as oil was defined as a common- property resource from common- property resource from the beginning the beginning
Adequate investment performanceAdequate investment performanceExcellent education recordExcellent education record
Why Why NorwayNorway has has succeeded where OPEC succeeded where OPEC and others failedand others failed
Even so, Norway faces challengesEven so, Norway faces challenges Some (weak) signs of Dutch diseaseSome (weak) signs of Dutch disease
Stagnant exports, sluggish FDIStagnant exports, sluggish FDILimited interest in EU and EMULimited interest in EU and EMU
Some signs also of unwillingness to Some signs also of unwillingness to undertake difficult reformsundertake difficult reformsHealth care provisionHealth care provisionPensionsPensions
Management of oil fund transferred from Management of oil fund transferred from Ministry of Finance to Central Bank Ministry of Finance to Central Bank 19991999
Bottom lineBottom line
FinFinGrowth requires accumulation and Growth requires accumulation and
efficient use of capitalefficient use of capital1.1. Physical capitalPhysical capital
through strong incentives to save and through strong incentives to save and investinvest
2.2. Human capitalHuman capital via education, training, & less fertility in via education, training, & less fertility in
LDCsLDCs
3.3. Social capitalSocial capital through democracy, etc.through democracy, etc.
These slides can be viewed on my website: www.hi.is/~gylfason
Financial and
foreign capital: Same
story