Cost-reducing R&D in the presence of an appropriation alternative: an application to the natural resource curse
AbstractThis study proposes a new mechanism for the resource curse: crowding-out of innovation due to the existence of an option to engage in conflict. Using a game theoretical framework, it is argued that an increase in the amount of natural resources (in the informal sector where conflict for a common-pool rent materializes) reduces the incentives of entrepreneurial groups to engage in cost-reducing R&D (in the non-resource sector where production occurs). Compared to most models of the resource curse, the impact of resource abundance on income and welfare was interestingly observed to be non-monotonic. An increase in the amount of resources in the common pool induces intensified conflict among groups and less R&D investment. Depending on the relative strengths of the income and diversion effects, three scenarios were exhibited. First, there is a 1.) Pure Blessing. This happens when both the extent of technological spillovers and the initial level of resource are low. Starting from scarcity, the increase in natural resource generates an overall jump in the groups' income levels. Even if an increase in resources decreases innovation in the formal sector, both income and welfare still go up. Meanwhile, for intermediate initial values of the natural resource, there is a 2.) Pseudo-curse. A resource boom induces an immediate income effect. However, this income gain is dominated by the indirect diversion effect due to lower output and higher price (because of less cost-reducing R&D). Consequently, while income increases, the welfare of the economy decreases. The range of resource levels where this occurs is greater when spillovers are high. Finally, a 3.) Double Curse occurs for extremely high initial levels of natural resources. Both aggregate income of the economy and welfare suffer. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ZBW - German National Library of Economics in its series EconStor Preprints with number 71189.
Date of creation: 2013
Date of revision:
Contact details of provider:
Postal: Düsternbrooker Weg 120, 24105 Kiel / Neuer Jungfernstieg 21, 20354 Hamburg
Phone: +49 431 8814-1
Fax: +49 431 8814-520
Web page: http://www.econstor.eu/
More information through EDIRC
innovation; appropriation; natural resources; conflict;
Other versions of this item:
- Klarizze Anne Martin Puzon, 2013. "Cost-Reducing R&D in the Presence of an Appropriation Alternative: An Application to the Natural Resource Curse," Working Papers 2013.30, Fondazione Eni Enrico Mattei.
- O13 - Economic Development, 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)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
- NEP-ENV-2013-04-20 (Environmental Economics)
- NEP-INO-2013-04-20 (Innovation)
- NEP-IUE-2013-04-20 (Informal & Underground Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
- Brunnschweiler, Christa N. & Bulte, Erwin H., 2008.
"The resource curse revisited and revised: A tale of paradoxes and red herrings,"
Journal of Environmental Economics and Management,
Elsevier, vol. 55(3), pages 248-264, May.
- Christa N. Brunnschweiler & Erwin H. Bulte, 2006. "The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings," CER-ETH Economics working paper series 06/61, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Hodler, Roland, 2006.
"The curse of natural resources in fractionalized countries,"
European Economic Review,
Elsevier, vol. 50(6), pages 1367-1386, August.
- Roland Hodler, 2004. "The Curse of Natural Resources in Fractionalized Countries," Diskussionsschriften dp0404, Universitaet Bern, Departement Volkswirtschaft.
- Sachs, J-D & Warner, A-M, 1996.
"Sources of Slow Growth in African Economies,"
545, Harvard - Institute for International Development.
- Francesco Caselli & Tom Cunningham, 2009.
"Leader Behavior and the Natural Resource Curse,"
CEP Discussion Papers
dp0913, Centre for Economic Performance, LSE.
- Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
- Matsuyama, Kiminori, 1992.
"Agricultural productivity, comparative advantage, and economic growth,"
Journal of Economic Theory,
Elsevier, vol. 58(2), pages 317-334, December.
- Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
- Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Rick van der Ploeg & Steven Poelhekke, 2010.
"The Pungent Smell of 'Red Herrings': subsoil assets, rents, volatility and the resource curse,"
OxCarre Working Papers
033, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- van der Ploeg, Frederick & Poelhekke, Steven, 2010. "The pungent smell of "red herrings": Subsoil assets, rents, volatility and the resource curse," Journal of Environmental Economics and Management, Elsevier, vol. 60(1), pages 44-55, July.
- Rick Van der Ploeg & Steven Poelhekke, 2010. "The Pungent Smell of "Red Herrings": Subsoil Assets, Rents, Volatility and the Resource Curse," CESifo Working Paper Series 3013, CESifo Group Munich.
- Frederick van der Ploeg & Steven Poelhekke, 2009. "The pungent smell of Red Herrings; Subsoil assets, rents, volatility and the resource curse," DNB Working Papers 233, Netherlands Central Bank, Research Department.
- Frederick van der Ploeg, 2010.
"Voracious Transformation Of A Common Natural Resource Into Productive Capital,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 365-381, 05.
- Frederick van der Ploeg, 2008. "Voracious Transformation of a Common Natural Resource into Productive Capital," OxCarre Working Papers 002, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- Mehlum, Halvor & Moene, Karl-Ove & Torvik, Ragnar, 2003.
"Institutions and the resource curse,"
29/2002, Oslo University, Department of Economics.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2004. "Institutions and the Resource Curse," DEGIT Conference Papers c009_012, DEGIT, Dynamics, Economic Growth, and International Trade.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2002. "Institutions and the resource curse," Development and Comp Systems 0210003, EconWPA.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2002. "Institutions and the resource curse," GE, Growth, Math methods 0210004, EconWPA.
- Frederick Van der Ploeg, 2010.
"Natural Resources: Curse or Blessing?,"
CESifo Working Paper Series
3125, CESifo Group Munich.
- repec:fth:stanho:e-92-3 is not listed on IDEAS
- Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1997. "A Mixed Blessing: Natural Resources and Economic Growth," CEPR Discussion Papers 1668, C.E.P.R. Discussion Papers.
- Peretto, Pietro F. & Valente, Simone, 2011. "Resources, innovation and growth in the global economy," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 387-399.
- Peretto, Pietro F., 2012. "Resource abundance, growth and welfare: A Schumpeterian perspective," Journal of Development Economics, Elsevier, vol. 97(1), pages 142-155.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.