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Natural Resources, Investment and Long-Term Income

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  • Dlisraios Papyrakis

    (IVM, Institute for Environmental Studies, Vrije Universiteit)

  • Reyer Gerlagh

    (IVM, Institute for Environmental Studies, Vrije Universiteit)

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 Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.87.

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Date of creation: May 2004
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Handle: RePEc:fem:femwpa:2004.87

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Related research

Keywords: Natural resources; Growth; Investment; OLG models;

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References

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  1. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  2. 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.
  3. Atkinson, Giles & Hamilton, Kirk, 2003. "Savings, Growth and the Resource Curse Hypothesis," World Development, Elsevier, vol. 31(11), pages 1793-1807, November.
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Cited by:
  1. Lucas Bretschger & Karen Pittel, 2005. "Innovative investments, natural resources, and intergenerational fairness : are pension funds good for sustainable development?," CER-ETH Economics working paper series 05/36, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Elisabeth Hermann Frederiksen, 2006. "Spending Natural Resource Revenues in an Altruistic Growth Model," EPRU Working Paper Series 06-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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