My thesis explores the effect of natural resource dependence on income and local development indicators at the district level in Indonesia. The thesis is comprised of five chapters, where the middle three chapters are the main empirical investigations.

Chapter One provides an introduction to the main questions of each chapter. Chapter Two starts the investigation of the resource curse in Indonesia by exploring the effect of resource dependence on district per capita income. Using annual fixed effects and first differenced regressions with and without newly constructed instruments, I find little evidence of a “resource curse”, but more a resource blessing.

Chapter Three questions why resource dependence is positively associated with per capita income in Indonesia. I test four potential causal mechanisms for this positive effect: spillovers to manufacturing, higher education provision, improvements in institutional quality, and investment in public capital. I first confirm a positive overall effect of resource dependence on real per capita Gross Regional Domestic Product. I then test the extent to which resource dependence positively affects manufacturing, education, district institutional quality, and public investment. I finally test the extent to which these factors in turn contribute to per capita income. I find that resource dependence aids income in part by raising measures of district institutional quality. Resource dependence also raises one measure of education, net high school enrolment rates, though I do not find that this in turn raises per capita income. Conversely, while higher capital spending by districts does raise income, I find no evidence that this share is affected by resource dependence. In auxiliary analysis, I find little support for the hypothesis that resource dependence benefits per capita income more (or only) for districts that begin with higher institutional quality.

Chapter Four finalises the investigation by testing the effect of resource dependence not only on income per capita but also on some other key development outcomes, namely the poverty rate, educational attainment (as opposed to enrolment) and life expectancy. In this chapter I also focus on the spatial spillover effects of neighbour district resource dependence on home district outcomes. The results again confirm my initial finding on per capita income, but with no significant effects found for poverty rates. In contrast, I find that home resource dependence is negatively associated with education attainment and with life expectancy measures, and that the effects of neighbour district resource dependence matters, sometimes in opposite ways to home district resource dependence.

Finally, Chapter Five summarises the empirical findings of the previous chapters.