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Windfalls, Structural Transformation and Specialization

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  • Karlygash Kuralbayeva
  • Radoslaw Stefanski

Abstract

Macro cross-country data and micro US country data indicate that resource rich regions have small and productive manufacturing sectors and large and unproductive non-manufacturing sectors. We suggest a process of specialization to explain these facts. Windfall revenue induces labor to move from the (traded) manufacturing sector to the (non-traded) non-manufacturing sector. A self selection of workers takes place. Only those most skilled in manufacturing sector work remain in manufacturing. Workers that move to non-manufacturing however, will be less skilled at non-manufacturing sector work than those who were already employed there. Resource induced structural transformation thus results in higher productivity in manufacturing and lower productivity in non-manufacturing. We construct and calibrate a two sector, open economy model of self-selection and show that exogenous cross-country variation in natural resource endowments is large enough to explain the direction and magnitude of sectoral employment and productivity difference between resource rich and resource poor regions. The model implies that low aggregate productivity found in some resource rich countries is not caused by a resource induced decline of a relatively productive manufacturing sector. Rather, the higher manufacturing producvity in those countries is a consequence of manufacturing's smaller size.

Suggested Citation

  • Karlygash Kuralbayeva & Radoslaw Stefanski, 2010. "Windfalls, Structural Transformation and Specialization," OxCarre Working Papers 054, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:054
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    Cited by:

    1. Radoslaw Stefanski, 2014. "Dirty Little Secrets: Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities," OxCarre Working Papers 134, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    2. Clement Anne, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers halshs-01381143, HAL.
    3. Clement ANNE, 2016. "Are Commodity Price Booms an Opportunity to Diversify? Evidence from Resource-dependent Countries," Working Papers 201615, CERDI.
    4. Antonio Mele & Radoslaw Stefanski, 2016. "Velocity in the Long Run: Money and Structural Transformation," CDMA Working Paper Series 201605, Centre for Dynamic Macroeconomic Analysis, revised 01 Aug 2017.
    5. Torfinn Harding & Radoslaw Stefanski & Gerhard Toews, 2016. "Boom goes the price: Giant resource discoveries and real exchange rate appreciation," Discussion Paper Series, Department of Economics 201608, Department of Economics, University of St. Andrews, revised 21 May 2016.
    6. Tiago Cavalcanti & Daniel Da Mata & Frederik Toscani, 2014. "Winning the Oil Lottery: The Impact of Natural Resource Extraction on Growth," Cambridge Working Papers in Economics 1455, Faculty of Economics, University of Cambridge.
    7. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    8. Bill Battaile & Saurabh Mishra, 2015. "Transforming Non-Renewable Resource Economies (NREs)," IMF Working Papers 15/171, International Monetary Fund.
    9. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, Department of Economics, University of Bristol, UK, revised 02 Dec 2014.
    10. Young, Alwyn, 2014. "Structural transformation, the mismeasurement of productivity growth, and the cost disease of services," LSE Research Online Documents on Economics 60213, London School of Economics and Political Science, LSE Library.
    11. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    12. Huikang Ying, 2014. "Growth and Structural Change in a Dynamic Lagakos-Waugh Model," Bristol Economics Discussion Papers 14/639, Department of Economics, University of Bristol, UK.
    13. Thiemo Fetzer, 2014. "Fracking Growth," CEP Discussion Papers dp1278, Centre for Economic Performance, LSE.
    14. James Cust & Torfinn Harding & Pierre-Louis Vezina, 2017. "Dutch Disease Resistance: Evidence from Indonesian Firms," OxCarre Working Papers 192, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    15. James, Alexander, 2015. "The resource curse: A statistical mirage?," Journal of Development Economics, Elsevier, vol. 114(C), pages 55-63.
    16. Grundmann, Rainer & Gries, Thomas, 2015. "Crucial for Modern Sector Development? The Role of Exports and Institutions in Developing Countries," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112962, Verein für Socialpolitik / German Economic Association.
    17. Radek Stefanski, 2016. "Government Misallocation and the Resource Curse," 2016 Meeting Papers 1207, Society for Economic Dynamics.
    18. Radoslaw (Radek) Stefanski, 2015. "Government Size, Misallocation and the Resource Curse," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Caputo & Roberto Chang (ed.), Commodity Prices and Macroeconomic Policy, edition 1, volume 22, chapter 6, pages 197-244 Central Bank of Chile.
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    More about this item

    Keywords

    Dutch disease; resource rich; resource poor; structural transformation;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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