A Blessing or a Curse? The Long-Term Effect of Resource Booms on Human Capital

Abstract

Is natural resource abundance a blessing or a curse for a country? An important concern is the possibility that resource booms reduce human capital accumulation. These booms favor low-skill jobs, which increases the opportunity cost of education making it optimal for some cohorts to interrupt their education. If these individuals do not resume their education, they may lose pecuniary and non-pecuniary benefits of education in their lifetime. For a country, lower human capital may constrain its long-term growth. I use proprietary individual-level data to study the long-term effects of exposure to the 1970s oil boom on human capital accumulation in the context of a developing country. I exploit variation in the timing of the shock and geographic differences in the cost of college attendance and find that exposure to the boom decreased college completion and increased low-skill occupation among affected individuals. I show evidence consistent with the hypothesis that individuals shift into highly remunerative low skilled employment and away from college because the boom decreased the returns of a college education. In line with this, despite the reduction in educational attainment, I find no effects on wealth accumulation.

Keywords: Resource booms, Development, Long-term effects, Educational attainment, Wealth

JEL Classification: O12, O13, J24, H30, H75