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The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies

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  • Raveh, Ohad

Abstract

Natural resource abundance is a blessing for some countries, yet is a curse for others. The degree of fiscal decentralization may account for this divergent outcome. Resources tend to locate in remote, non-agglomerated, and sparsely populated areas; a high degree of fiscal decentralization gives a resource abundant region an advantage in the inter-regional tax competition over capital so that it attracts some capital from agglomerated and densely populated regions. Given a sufficiently high agglomeration level, any such movement of capital would bring a loss of output in the agglomerated region that outweighs the sum of gains from resource income and increased output in the remote region – so that aggregate product in the economy drops. This theory is empirically tested -and confirmed- building on Sachs and Warner’s influential works on the resource curse, employing the World Bank’s Fiscal Decentralization Indicators, and taking the United States as a case study.

Suggested Citation

  • Raveh, Ohad, 2011. "The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies," MPRA Paper 29664, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29664
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    File URL: https://mpra.ub.uni-muenchen.de/29664/1/MPRA_paper_29664.pdf
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    References listed on IDEAS

    as
    1. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    2. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
    3. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
    4. Rodriguez, Francisco & Sachs, Jeffrey D, 1999. "Why Do Resource-Abundant Economies Grow More Slowly?," Journal of Economic Growth, Springer, vol. 4(3), pages 277-303, September.
    5. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association;National Tax Journal, vol. 46(2), pages 237-243, June.
    6. Carlos A Leite & Jens Weidmann, 1999. "Does Mother Nature Corrupt? Natural Resources, Corruption, and Economic Growth," IMF Working Papers 99/85, International Monetary Fund.
    7. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    8. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
    9. Gylfason, Thorvaldur, 2001. "Natural resources, education, and economic development," European Economic Review, Elsevier, vol. 45(4-6), pages 847-859, May.
    10. Papyrakis, Elissaios & Gerlagh, Reyer, 2004. "The resource curse hypothesis and its transmission channels," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 181-193, March.
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    More about this item

    Keywords

    Natural Resources; Economic Growth; Resource Curse; Fiscal Decentralization; Agglomeration Economies; Tax Competition;

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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