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Resource abundance, growth and welfare: A Schumpeterian perspective

  • Peretto, Pietro F.

This paper takes a new look at the long-run implications of resource abundance. It develops a Schumpeterian model of endogenous growth that incorporates an upstream resource-intensive sector and yields an analytical solution for the transition path. It then derives conditions under which, as the economy's endowment of a natural resource rises, (i) growth accelerates and welfare rises, (ii) growth decelerates but welfare rises nevertheless, and (iii) growth decelerates and welfare falls. Which of these scenarios prevails depends on the response of the natural resource price to an increase in the resource endowment. The price response determines the change in income earned by the owners of the resource (the households) and thereby the change in their expenditure on manufacturing goods. Since manufacturing is the economy's innovative sector, this income-to-expenditure effect links resource abundance to the size of the market for manufacturing goods and drives how re-source abundance affects incentives to undertake innovative activity.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 1 ()
Pages: 142-155

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Handle: RePEc:eee:deveco:v:97:y:2012:i:1:p:142-155
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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  1. 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.
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  9. Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
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  11. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
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  13. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
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