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Corruption, the resource curse and genuine saving

Published online by Cambridge University Press:  29 January 2007

SIMON DIETZ ,
ERIC NEUMAYER  and
INDRA DE SOYSA
SIMON DIETZ
Affiliation:
Department of Geography and Environment and Centre for Environmental Policy and Governance, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK
ERIC NEUMAYER
Affiliation:
Department of Geography and Environment and Centre for Environmental Policy and Governance, London School of Economics and Political Science, Houghton Street, London WC2A 2AE, UK
INDRA DE SOYSA
Affiliation:
Department of Sociology and Political Science, Norwegian University of Science and Technology, Trondheim, Norway
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Abstract

Genuine saving is a measure of net investment in produced, natural and human capital. It is a necessary condition for weak sustainable development that genuine saving not be persistently negative. However, according to data provided by the World Bank, resource-rich countries are systematically failing to meet this condition. Alongside the well-known resource curse on economic growth, resource abundance might have a negative effect on genuine saving. In fact, the two are closely related, as future consumption growth is limited by insufficient genuine saving now. In this paper, we apply the most convincing conclusion from the literature on economic growth – that it is institutional failure that depresses growth – to data on genuine saving. We regress gross and genuine saving on three indicators of institutional quality in interaction with an indicator of resource abundance. The indicators of institutional quality are corruption, bureaucratic quality and the rule of law. We find that reducing corruption has a positive impact on genuine saving in interaction with resource abundance. That is, the negative effect of resource abundance on genuine saving is reduced as corruption is reduced.

Type
Research Article
Information
Environment and Development Economics , Volume 12 , Issue 1 , February 2007 , pp. 33 - 53
Copyright
© 2007 Cambridge University Press

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Footnotes

Thanks to Kirk Hamilton, Anastasios Xepapadeas and two anonymous referees for many helpful and constructive comments. The usual disclaimer applies. Eric Neumayer acknowledges financial assistance from the Leverhulme Trust.