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The Long-Term Consequences of Regional Specialization

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  • Michaels, Guy

Abstract

What are the consequences of resource-based regional specialization, when it persists over a long period of time? While much of the literature argues that specialization is beneficial, recent work suggests it may be costly in the long run, due to economic or political reasons. I examine this question empirically, using exogenous geological variation in the location of subsurface oil in the Southern United States. I find that oil abundant counties are highly specialized: for many decades their mining sector was almost as large as their entire manufacturing sector. During the 1940s and 1950s, oil abundant counties enjoyed per capita income that was 20-30 percent higher than other nearby counties, and their workforce was better educated. But whereas in 1940 oil production crowded out agriculture, over the next 50 years it caused the oil abundant counties to develop a smaller manufacturing sector. This led to slower accumulation of human capital in the oil abundant counties, and to a narrowing of per capita income differentials to about 5 percentage points. Despite this caveat, the gains from specialization were large, and specialization had little impact on the fraction of total income spent by local government or on income inequality.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6028.

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Date of creation: Dec 2006
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Handle: RePEc:cpr:ceprdp:6028

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Keywords: growth; human capital; petroleum; specialization;

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  1. Guy Michaels, 2006. "The effect of trade on the demand for skill - evidence from the interstate highway system," LSE Research Online Documents on Economics 19767, London School of Economics and Political Science, LSE Library.
  2. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
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Cited by:
  1. Collier, Paul & Goderis, Benedikt, 2012. "Commodity prices and growth: An empirical investigation," European Economic Review, Elsevier, vol. 56(6), pages 1241-1260.
  2. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany.
  3. Aragon, Fernando & Rud, Juan, 2009. "The Blessing of Natural Resources: Evidence from a Peruvian Gold Mine," Working Papers 2009-014, Banco Central de Reserva del Perú.
  4. Guy Michaels, 2007. "The long term consequences of resource based specialization," LSE Research Online Documents on Economics 3249, London School of Economics and Political Science, LSE Library.

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