Political Conflict, Natural Resource Abundance and Human Capital

Ece H. Guleryuz
(Department of Economics, Franklin and Marshall College, PO Box 3003, Lancaster, PA17604-3003, USA)

Abstract: This paper proposes a political economy analysis for the nexus between natural resource abundance and human capital accumulation in a multi-sector economy framework. I investigate the incentives of various social groups to finance human capital accumulation through public education under different political coalition formations. In particular, I show that the preferred tax rates of the manufacturers and of the coalition of manufacturers and landowners coincide with the socially optimal tax rate. On the other hand, although the natural resource owners support human capital accumulation, if in power they choose an excessively high tax rate that suppresses aggregate output to a suboptimal level. Moreover, when landowners have the political power they prefer a tax rate lower than the socially optimal tax rate.

Key words: natural resource abundance; human capital accumulation; political economy; economic growth

JEL codes: O13, O15, O41, O43, P16, Q00