The Effects of Reliance on Natural Resources on State and Local Human Capital Investments
Studies suggest that natural resource abundance in developing countries is positively correlated with slower economic growth. Several theories attempt to explain this counterintuitive phenomenon, including the notion that governments that benefit from revenues from natural resources have less pressure to build their economies through human capital investment. This study examines whether or not this theory applies to individual states within the US by testing the relationship between states reliance upon natural resources and human capital investment expenditures. For states that do not rely heavily on mining, the results show some evidence of a negative relationship between reliance on mining and both total per capita state and local spending and per capita spending on education. As states that are not as reliant on mining decrease their reliance further, their spending on education increases. However, for states that rely relatively heavily on mining, these relationships are positive. There is also evidence of a positive relationship between oil and fuel reliance and per capita expenditures, as well as elementary and secondary education spending, for states that have a relatively high reliance on oil and fuel, though higher education is negatively associated with oil and fuel reliance. Additionally, we find a negative relationship between reliance on non-farming agriculture (fishing, forestry and hunting) and education spending for states that rely relatively heavily on non-farming agriculture. The results suggest that the federal government can examine trends in the composition of state economies to predict trends in state and local financing, perhaps providing insight into state and local preparedness for shocks to the economy or natural disasters.
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Macey, Jonathan R. (1990-02)
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