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Resource Wealth, Innovation and Growth in the Global Economy

We analyze the relative growth performance of open economies in a two-country model where different endowments of labor and a natural resource generate asymmetric trade. A resource-rich economy trades resource-based intermediates for final manufacturing goods produced by a resource-poor economy. Productivity growth in both countries is driven by endogenous innovations. The effects of a sudden increase in the resource endowment depend crucially on the elasticity of substitution between resources and labor in interme- diates' production. Under substitution (complementarity), the resource boom generates higher (lower) resource income, lower (higher) employment in the resource-intensive sector, higher (lower) knowledge creation and faster (slower) growth in the resource-rich economy. The resource-poor economy adjusts to the shock by raising (reducing) the relative wage, and experiences a positive (negative) growth effect that is exclusively due to trade.

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File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-10-124.pdf
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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 10/124.

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Length: 36 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:eth:wpswif:10-124
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