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Why Do Resource-Abundant Economies Grow More Slowly?

  • Rodriguez, Francisco
  • Sachs, Jeffrey D

This article suggests an alternative explanation for why resource-rich economies have lower growth rates: because they are likely to be living beyond their means. It is shown that overshooting the steady state's equilibrium consumption and investment can be optimal in a Ramsey growth model with natural resources. Therefore, the economy will converge to its steady state from above, displaying negative growth rates on the transition. A dynamic general equilibrium model is calibrated to the Venezuelan economy and shown to approximate the economy's performance over the oil boom years adequately. Copyright 1999 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 4 (1999)
Issue (Month): 3 (September)
Pages: 277-303

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Handle: RePEc:kap:jecgro:v:4:y:1999:i:3:p:277-303
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