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Natural Resource Wealth and Directed Technical Change

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  • Paul Segal

Abstract

This paper analyses the e¤ect of a resource discovery on an open economy with endogenous directed technical change. Technical progress depends on entrepreneurs who produce (or adopt) technology, and endogenously choose which sector to operate in. The static e¤ect of a resource discovery is de- industrialization and a rise in non-resource factor incomes, as in standard trade theory. Dynamically, the "brain drain" of entrepreneurs into the re- source sector may exacerbate the de-industrialization over time, but if the discovery is not su¢ ciently large then it leads to temporarily lower growth in non-resource factor incomes, which are lower in the long run than without the discovery. In this case non-resource owners are made worse off by the discov- ery. Second best trade or investment policies that direct entrepreneurs away from the resource sector may be used to raise long-run non-resource income, at a cost to GDP.

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Bibliographic Info

Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 088.

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Date of creation: 2012
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Handle: RePEc:oxf:oxcrwp:088

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Related research

Keywords: economic growth; Dutch disease; natural resource wealth; directed technical change; distribution of income;

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  1. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, 01.
  2. Gover Barja Daza & Javier Monterrey Arce & Sergio Villarroel Bohrt, 2005. "The Elasticity of Substitution in Demand for Non-Tradable Goods in Bolivia," Research Department Publications 3181, Inter-American Development Bank, Research Department.
  3. Benedikt Goderis & Samuel W. Malone, 2011. "Natural Resource Booms and Inequality: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 388-417, 06.
  4. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  5. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  6. Neary, Peter, 1988. "Determinants of the Equilibrium Real Exchange Rate," American Economic Review, American Economic Association, vol. 78(1), pages 210-15, March.
  7. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2006. "Resource curse or not: A question of appropriability," DEGIT Conference Papers c011_050, DEGIT, Dynamics, Economic Growth, and International Trade.
  8. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  9. Paul Cashin & C. John McDermott, 2003. "Intertemporal Substitution and Terms-of-Trade Shocks," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 604-618, 09.
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