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Natural Resource, Investment and Long-Term Income

  • Elissios Papyrakis
  • Reyer Gerlach
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    We study the negative correlation between natural resource-abundance and long-term income focusing on the savings-investment channel. We first present empirical evidence on this channel and then develop an OverLapping-Generations (OLG) model to study the issue. In this model, savings adjust downwards to income from natural resources, and investment in capital contributes to knowledge creation, a feature based on endogenous growth theory. We analyze the link from resource income future income through savings and investment. Natural resources have two counteracting effects on income. In the short term, resource wealth augments income, but in the long-term, it decreases income through a crowding-out effect on capital and knowledge. We discuss different scenarios under which the resource curse is most likely to take place.

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    File URL: http://degit.sam.sdu.dk/papers/degit_09/C009_035.pdf
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    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_035.

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    Length: 28 pages
    Date of creation: Jun 2004
    Date of revision:
    Handle: RePEc:deg:conpap:c009_035
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    1. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    2. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    3. Thorvaldur Gylfason, 2000. "Resources, Agriculture, and Economic Growth in Economies in Transition," CERGE-EI Working Papers wp157, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
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    5. Mo, Pak Hung, 2000. "Income Inequality and Economic Growth," Kyklos, Wiley Blackwell, vol. 53(3), pages 293-315.
    6. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    7. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
    8. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
    9. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    10. Atkinson, Giles & Hamilton, Kirk, 2003. "Savings, Growth and the Resource Curse Hypothesis," World Development, Elsevier, vol. 31(11), pages 1793-1807, November.
    11. Auty, Richard M., 1994. "Industrial policy reform in six large newly industrializing countries: The resource curse thesis," World Development, Elsevier, vol. 22(1), pages 11-26, January.
    12. Carlos Leite & Jens Weidmann, 1999. "Does Mother Nature Corrupt; Natural Resources, Corruption, and Economic Growth," IMF Working Papers 99/85, International Monetary Fund.
    13. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Fundamental," American Economic Review, American Economic Association, vol. 87(2), pages 184-88, May.
    14. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
    15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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