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Natural Resource, Investment and Long-Term Income

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  • Elissios Papyrakis
  • Reyer Gerlach
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    Abstract

    We study the negative correlation between natural resource-abundance and long-term income focusing on the savings-investment channel. We first present empirical evidence on this channel and then develop an OverLapping-Generations (OLG) model to study the issue. In this model, savings adjust downwards to income from natural resources, and investment in capital contributes to knowledge creation, a feature based on endogenous growth theory. We analyze the link from resource income future income through savings and investment. Natural resources have two counteracting effects on income. In the short term, resource wealth augments income, but in the long-term, it decreases income through a crowding-out effect on capital and knowledge. We discuss different scenarios under which the resource curse is most likely to take place.

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    Bibliographic Info

    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_035.

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    Length: 28 pages
    Date of creation: Jun 2004
    Date of revision:
    Handle: RePEc:deg:conpap:c009_035

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    Related research

    Keywords: Natural Resources; Growth; Investment; OLG models.;

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    References

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    1. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-32, August.
    2. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    3. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
    4. Thorvaldur Gylfason, 2000. "Resources, Agriculture, and Economic Growth in Economies in Transition," CERGE-EI Working Papers wp157, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    5. Carlos Leite & Jens Weidmann, 1999. "Does Mother Nature Corrupt - Natural Resources, Corruption, and Economic Growth," IMF Working Papers 99/85, International Monetary Fund.
    6. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    7. Mo, Pak Hung, 2000. "Income Inequality and Economic Growth," Kyklos, Wiley Blackwell, vol. 53(3), pages 293-315.
    8. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    9. Atkinson, Giles & Hamilton, Kirk, 2003. "Savings, Growth and the Resource Curse Hypothesis," World Development, Elsevier, vol. 31(11), pages 1793-1807, November.
    10. Auty, Richard M., 1994. "Industrial policy reform in six large newly industrializing countries: The resource curse thesis," World Development, Elsevier, vol. 22(1), pages 11-26, January.
    11. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
    12. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    13. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Fundamental," American Economic Review, American Economic Association, vol. 87(2), pages 184-88, May.
    14. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bretschger, Lucas & Pittel, Karen, 2005. "Innovative investments, natural resources, and intergenerational fairness, are pension funds good for sustainable development?," Munich Reprints in Economics 20225, University of Munich, Department of Economics.

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