How natural resource rents, exports, and government resource revenues determine Genuine Savings: Causal evidence from oil, gas, and coal

Natural resource-rich countries face the challenge of harnessing their resources for sustainable economic development. Although existing literature extensively studies the resource curse phenomenon, gaps remain in understanding exactly how natural resource use impacts sustainable development. This study addresses this gap by analyzing how the natural resource conversion process affects sustainable economic development, using Genuine Savings as the key indicator. The natural resource conversion process encompasses four distinct stages-discovery, extraction, appropriation, and (re-)investments-that transform natural resources into human- and produced capital assets to achieve sustainable development, consistent with the weak sustainability paradigm. Employing a comprehensive dataset spanning 118 countries over 20 years, we use an instrumental variable approach to estimate the causal effects of four variables corresponding to the four stages of conversion: natural capital, natural resource rents, resource exports, and government resource revenues. Results show that energy rents (oil, gas, and coal) and exports jointly decrease Genuine Savings, except in countries with good institutions. Contrary to previous studies, we demonstrate that economies specializing heavily in energy exports successfully leverage their comparative advantage, increasing Genuine Savings. Other countries achieve sustainable development through energy extraction and domestic use of resources. We conclude that successful resource management for sustainable economic development aims to achieve two objectives. First, it seeks to reduce energy exports when at a comparative disadvantage or harness them when at a comparative advance. Second, it focuses on improving institutional quality.