Resource-rich countries of the Middle East and North Africa (MENA) have the highest youth unemployment rate in the world. While other parts of the world are experiencing an increasing trend in new firms’ formation as a potential solution for their unemployment problem, the MENA region has the lowest records in new business establishments. In this study, we investigate the reasons behind such a significant lag of the resource-rich countries in entrepreneurship. Panel data for more than 80 countries from 2004-2009 shows that higher dependence on resource rents reduces entrepreneurship activities. The decline is more significant in countries with higher levels of point resources such as oil and coal.
That is from a new paper by Mohammad Reza.
The author explains:
Summing up, all lootable and non-lootable resources in model 6 also show a dampening effect on entry density across countries. This observation is in line with Torvik’s (2002) theoretical predictions. Higher reliance on lootable resource rents affects the allocation of labor forces in favor of directly unproductive activities rather than entrepreneurship ones. In a resource-based economy, fewer entrepreneurs will run firms and more will engage in rent seeking (Torvik, 2009). A 1% increase in the size of oil rents (as a share of GDP), reduces the number of newly registered limited-liability firms as a percentage of the country’s working age population by 0.06%, while the same increase in the share of coal rents in the economy limits the entry density by 0.10%.