Resource Rents, Genuine Savings and Sustainable Development: Revisiting the Evidence

Abstract

Economic theory on sustainable development suggests that resource-rich countries should reinvest the rents from natural resource extraction in other forms of capital to ensure that future consumption level of the economy can be greater than or at least equal to the level of their current consumption. Several seminal papers in the early 2000s indicated that the correlation between genuine savings and future consumption was weaker than theory predicted, at least when genuine savings were measured using the World Bank estimates. This paper revisits the issue and replicates two of these earlier studies to see whether the correlation has become stronger over time, on the back of policy changes in resource-rich countries and of revisions to the World Bank estimates. The results indicate that the correlation between genuine savings and future consumption growth may be stronger for poorer countries than for richer, and for sub-Saharan Africa, the theoretical predictions appear to hold.