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Windfalls, structural transformation and specialization

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  • Kuralbayeva, Karlygash
  • Stefanski, Radoslaw

Abstract

Macro cross-country data and micro US county data indicate that resource-rich regions have small but relatively productive manufacturing sectors and large but relatively unproductive non-manufacturing sectors. We suggest a process of specialization to explain these facts. Windfall revenue induces labor to move from the (traded) manufacturing to the (non-traded) non-manufacturing sector. A self-selection of workers takes place. Only those most skilled in manufacturing sector work remain in manufacturing. Workers that move to non-manufacturing however, will be less skilled at non-manufacturing sector work than those who were already employed there. Resource-induced structural transformation thus results in higher productivity in manufacturing and lower productivity in non-manufacturing. We construct and calibrate a two-sector, open economy model of self-selection and show that exogenous cross-country variation in natural resource endowments is large enough to explain the direction and magnitude of sectoral employment and productivity differences between resource-rich and resource-poor regions. The model implies that low aggregate productivity found in some resource-rich countries is not caused by a resource-induced decline of a relatively productive manufacturing sector. Rather, the higher manufacturing productivity in those countries is a consequence of manufacturing's smaller size.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 2 ()
Pages: 273-301

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Handle: RePEc:eee:inecon:v:90:y:2013:i:2:p:273-301

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Structural transformation; Dutch disease; Productivity; Natural resources; Resource curse; Self-selection;

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Citations

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Cited by:
  1. University of Minnesota & Radoslaw Stefanski, 2009. "Structural Transformation and the Oil Price," 2009 Meeting Papers 1050, Society for Economic Dynamics.
  2. Huikang Ying, 2014. "Growth and Structural Change in a Dynamic Lagakos-Waugh Model," Bristol Economics Discussion Papers 14/639, Department of Economics, University of Bristol, UK.
  3. Frederick van der Ploeg & Anthony J Venables, 2012. "Natural Resource Wealth: The challenge of managing a windfall," OxCarre Working Papers 075, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  4. Alwyn Young, 2013. "Structural transformation, the mismeasurement of productivity growth and the cost disease of services," LSE Research Online Documents on Economics 54247, London School of Economics and Political Science, LSE Library.
  5. Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.

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