The Impact of Natural Resource Rents on Human Capital: The Moderating Role of Financial Deepening in Emerging Economies

Focusing on emerging markets, this study examines the moderating effect of the monetary dimension of financial deepening on the relationship between resource rents and human capital accumulation. Utilizing a macro-panel dataset of 15 emerging economies spanning the period 2002–2021, the study employs a Fixed Effects estimation with Driscoll–Kraay standard errors to address cross-sectional dependence, and heteroskedasticity. The Human Capital Index serves as the dependent variable, while natural resource rents act as the main explanatory variable, and Broad Money-to-GDP is used as a proxy for the monetary dimension of financial deepening. The empirical outcomes reveal that natural resource rents alone exhibit a positive but statistically weak association with human capital accumulation. Conversely, there is a statistically significant negative interaction between resource abundance and financial deepening, suggesting that higher levels of the monetary dimension of financial deepening strengthen the adverse effect of resource rents on human capital. Marginal effects analysis further reveals that this adverse moderating effect becomes statistically significant when the Broad Money-to-GDP ratio reaches approximately 70%. Overall, the results imply that expanding the monetary dimension of financial deepening does not alleviate the negative influence of natural resource rents on human capital development; rather, the adverse effect becomes stronger when the Broad Money-to-GDP ratio exceeds approximately 70%.