Does High Indebtedness Increase Natural Resource Exploitation?

30 Pages Posted: 8 Feb 2005 Last revised: 24 Jun 2010

See all articles by Eric Neumayer

Eric Neumayer

London School of Economics and Political Science (LSE)

Abstract

The debt-resource-hypothesis suggests that high indebtedness leads to increased natural resource exploitation as well as more unsustainable patterns of resource use. Countries with high debt burdens supposedly increase their extraction of fossil fuels and mineral resources as well as their production of so-called cash crops in order to service their debt obligations. In spite of its popularity, there have been few attempts to systematically test the hypothesis. Existing analyses refer to deforestation only and come to mixed results. This study fills a gap in testing the hypothesis more comprehensively for 23 natural resources and cash crops. It uses first differencing, period-specific time dummies and a lagged dependent variable to mitigate omitted variable bias. No evidence is found that would support the debt-resource-hypothesis.

Keywords: debt stock, debt service, fossil fuels, mineral resources, cash crops

JEL Classification: F34, Q10, Q23, Q30

Suggested Citation

Neumayer, Eric, Does High Indebtedness Increase Natural Resource Exploitation?. Environment and Development Economics, Vol. 10, No. 2, pp. 127-141, April 2005. Available at SSRN: https://ssrn.com/abstract=642245

Eric Neumayer (Contact Author)

London School of Economics and Political Science (LSE) ( email )

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HOME PAGE: http://personal.lse.ac.uk/neumayer

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