Is the “curse of natural resources” really a curse?
AbstractThis paper takes a new look at the long-run implications of resource abundance. Using a Schumpeterian growth model that yields an analytical solution for the transition path, it derives conditions under which the curse of natural resources occurs and is in fact a curse, meaning that welfare falls, conditions under which it occurs but it is not a curse, meaning that growth slows down but welfare rises nevertheless, and conditions under which it does not occur at all. An effective way to summarize the results is to picture growth and welfare as hump-shaped functions of resource abundance. The property that the peak of growth occurs earlier than the peak of welfare captures the crucial role of initial consumption, which rises with resource abundance, and is an important reminder that the welfare effect of resource abundance depends on the whole path of consumption, not on a summary statistic of its slope. Growth regressions that ignore the endogeneity of initial income do not provide sufficient information to assess whether resource abundance is bad even if one could prove beyond reasonable doubt that the relation is indeed negative and causal. Recent evidence that the correlation is actually positive should make us even more skeptical of policy advice based on the curse logic.
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000164.
Date of creation: 12 Mar 2009
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Other versions of this item:
- Pietro F. Peretto, 2010. "Is the 'Curse of Natural Resources' Really a Curse?," Working Papers 10-18, Duke University, Department of Economics.
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-14 (All new papers)
- NEP-ENE-2009-03-14 (Energy Economics)
- NEP-ENV-2009-03-14 (Environmental Economics)
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- Pietro F. Peretto & Simone Valente, 2011.
"Growth on a Finite Planet: Resources, Technology and Population in the Long Run,"
CER-ETH Economics working paper series
11/147, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Pietro Peretto & Simone Valente, 2011. "Growth on a Finite Planet: Resources, Technology and Population in the Long Run," Working Papers 11-12, Duke University, Department of Economics.
- Pietro F. Peretto & Simone Valente, 2010. "Growth on a Finite Planet: Resources, Technology and Population in the Long Run," DEGIT Conference Papers c015_008, DEGIT, Dynamics, Economic Growth, and International Trade.
- Pietro F. Peretto & Simone Valente, 2013. "Growth on a Finite Planet: Resources, Technology, and Population in the Long Run," Working Papers 13-9, Duke University, Department of Economics.
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