The Effect of Natural Resource Dependence on Education in Indonesia

Empirical evidence on the effect of natural resource dependence on education so far has revealed mixed results. As a result of the ongoing controversy, this examination offers the opportunity to extend knowledge about the relationship between natural resource dependence and education. Using a panel dataset of 26 Indonesian provinces from 1996 to 2012 a fixed effects regression is performed to investigate the local relationship between human capital accumulation and resource dependency. Additionally, the analysis is complemented by a small cross-country panel estimation including Indonesia, Malaysia, Thailand, the Philippines and Vietnam to compare the results. A Pooled Mean Group Estimator is applied in this section to analyse the long-run relationship between 1984 and 2017. The findings reveal that natural resource dependence, estimated through different measures, has a significant impact on human capital accumulation. However, the presented evidence offers mixed results on the sign of the effect. While a positive linkage is detected on the province-level in Indonesia, the cross-country analysis indicates a primarily negative impact of resource dependency on human capital accumulation. Furthermore, the findings suggest institutional quality significantly diminishes the impact of resource dependence in the cross-country sample