Cost-Reducing R&D in the Presence of an Appropriation Alternative: An Application to the Natural Resource Curse
This 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 here 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.
|Date of creation:||Mar 2013|
|Contact details of provider:|| Postal: Corso Magenta, 63 - 20123 Milan|
Web page: http://www.feem.it/
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, 01.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2002. "Institutions and the resource curse," GE, Growth, Math methods 0210004, EconWPA.
- Mehlum, Halvor & Moene, Karl-Ove & Torvik, Ragnar, 2003. "Institutions and the resource curse," Memorandum 29/2002, Oslo University, Department of Economics.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2002. "Institutions and the resource curse," Development and Comp Systems 0210003, EconWPA.
- Halvor Mehlum & Karl Moene & Ragnar Torvik, 2004. "Institutions and the Resource Curse," DEGIT Conference Papers c009_012, DEGIT, Dynamics, Economic Growth, and International Trade.
- 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.
- 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.
- 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.
- Frederick 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, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
- Frederick Van der Ploeg, 2010. "Natural Resources: Curse or Blessing?," CESifo Working Paper Series 3125, CESifo Group Munich.
- repec:hoo:wpaper:e-92-3 is not listed on IDEAS
- Francesco Caselli & Tom Cunningham, 2009. "Leader behaviour and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 628-650, October.
- Francesco Caselli & Tom Cunningham, 2009. "Leader Behavior and the Natural Resource Curse," CEP Discussion Papers dp0913, Centre for Economic Performance, LSE.
- 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.
- 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.
- 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.
- Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
- Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
- Frederick van der Ploeg, 2008. "Why Do Many Resource-Rich Countries Have Negative Genuine Saving?," OxCarre Working Papers 010, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- 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.
- 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.
- Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-376, October.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2013.30. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah)
If references are entirely missing, you can add them using this form.