Christian Ebeke et al., 2015; Oil, governance and the (mis)allocation of talent indeveloping countries

[Jan 30th, Journal of  Development Economics]

Thanks to Sachs and Warner (1995), the topic of Resource Curse has been quite a fertile land for development research. Resources (typically oils and natural gases), growth, and the many links between them give birth to various causal relations (I will talk more about it next time). This paper, actually, does not focus on growth,or development; its subject is human capital, specifically, university talents. According to Murphy et al. (1991), the allocation of talents, as well as the quantity of talents, matters a lot in a country’s development. University students majoring in law degrees are more likely to become rent-seekers, which impedes (at least long term) economic development, but students majoring in engineering degrees are more likely to become entrepreneurs, which will productively promote development. Taking a step  further, Ebeke et al. link the talent allocation with the abundance of resource (oil). Their point of view is that resources can affect students’ choice of major in universities, depending on the country’s institutions, or quality of governance. Abundant oil, in bad institutions will encourage students to acquire degrees of law, management, and social science, with whose help they may get into rent-seeking positions, earning higher wages. In good institutions, however, oil abundance will shift talent to degrees ofengineering, manufacturing and construction.

Easy framework:

Where G is gap between rent-seeker majors and entrepreneur majors, INSTVUL measures  the vulnerability of institutions, or the badness of institutions. The focus here is delta, which should be positive according to the hypothesis.

Some robustness checks:

1.Alternative dependent variables: the proportion of rent-seeker major students in whole students.

2.Alternative independent variables: respectively using the six index of institution vulnerability.

3.Control potential endogenous problems: using initial governance quality instead of period-average values and oil reserves instead of oil rents.

4.Use panel data (which may include biases owing to small rounds) estimates to check the results.

5.Test the group of overseas students.