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The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies

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  • Raveh, Ohad

Abstract

Natural resource abundance is a blessing for some countries, yet is a curse for others. The degree of fiscal decentralization may account for this divergent outcome. Resources tend to locate in remote, non-agglomerated, and sparsely populated areas; a high degree of fiscal decentralization gives a resource abundant region an advantage in the inter-regional tax competition over capital so that it attracts some capital from agglomerated and densely populated regions. Given a sufficiently high agglomeration level, any such movement of capital would bring a loss of output in the agglomerated region that outweighs the sum of gains from resource income and increased output in the remote region – so that aggregate product in the economy drops. This theory is empirically tested -and confirmed- building on Sachs and Warner’s influential works on the resource curse, employing the World Bank’s Fiscal Decentralization Indicators, and taking the United States as a case study.

Suggested Citation

  • Raveh, Ohad, 2011. "The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies," MPRA Paper 29664, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29664
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    File URL: https://mpra.ub.uni-muenchen.de/29664/1/MPRA_paper_29664.pdf
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    References listed on IDEAS

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    1. Wallace E. Oates & Wallace E. Oates, 2004. "Fiscal Decentralization and Economic Development," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 21, pages 377-383, Edward Elgar Publishing.
    2. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    3. Raveh, Ohad, 2010. "Dutch disease, factor mobility costs, and the ‘Alberta Effect’ – The case of Federations," MPRA Paper 31744, University Library of Munich, Germany, revised Jun 2011.
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    Cited by:

    1. Canavire-Bacarreza, Gustavo & Martinez-Vazquez, Jorge & Yedgenov, Bauyrzhan, 2020. "Identifying and disentangling the impact of fiscal decentralization on economic growth," World Development, Elsevier, vol. 127(C).
    2. Fei Guo & Isabel Kit-Ming Yan, 2021. "Fiscal Decentralization and Fiscal Multiplier in China," GRU Working Paper Series GRU_2021_026, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    3. OGAWA Hikaru & OSHIRO Jun & SATO Yasuhiro, 2012. "Capital Mobility—a resource curse or blessing? How, when, and for whom?," Discussion papers 12063, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Natural Resources; Economic Growth; Resource Curse; Fiscal Decentralization; Agglomeration Economies; Tax Competition;
    All these keywords.

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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