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The capital gains from trade are not enough: Evidence from the environmental accounts of Venezuela and Mexico

In principle, a country can not endure negative genuine savings for long periods of time without experiencing declining consumption. Nevertheless, theoreticians envisage two alternatives to explain how an exporter of non-renewable natural resources could experience permanent negative genuine savings and still ensure sustainability. The first one alleges that the capital gains arising from the expected improvement in the terms of trade would suffice to compensate for the negative savings of the resource exporter. The second alternative points at technological change as a way to avoid economic collapse. This paper uses the data of Venezuela and Mexico to empirically test the first of these two hypotheses. The results presented here prove that the terms of trade do not suffice to compensate the depletion of oil reserves in these two open economies.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 689.

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Date of creation: May 2003
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Handle: RePEc:upf:upfgen:689
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Geir B. Asheim, 1986. "Hartwick's Rule in Open Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 19(3), pages 395-402, August.
  2. Vincent, Jeffrey R. & Panayotou, Theodore & Hartwick, John M., 1997. "Resource Depletion and Sustainability in Small Open Economies," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 274-286, July.
  3. John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
  4. Miller, Merton H & Upton, Charles W, 1985. "A Test of the Hotelling Valuation Principle," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 1-25, February.
  5. M. L. Weitzman, 1974. "On the Welfare Significance of National Product in Dynamic Economy," Working papers 125, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. John M. Hartwick, 1990. "Natural Resources, National Accounting and Economic Depreciation," Working Papers 771, Queen's University, Department of Economics.
  7. Weitzman, Martin L., 1999. "Pricing the Limits to Growth from Minerals Depletion," Scholarly Articles 3708467, Harvard University Department of Economics.
  8. Vincent, Jeffrey R., 1997. "Resource depletion and economic sustainability in Malaysia," Environment and Development Economics, Cambridge University Press, vol. 2(01), pages 19-37, February.
  9. Irwin, Douglas A, 1991. "Terms of Trade and Economic Growth in Nineteenth Century Britain," Bulletin of Economic Research, Wiley Blackwell, vol. 43(1), pages 93-101, January.
  10. Asheim, Geir B., 1996. "Capital gains and net national product in open economies," Journal of Public Economics, Elsevier, vol. 59(3), pages 419-434, March.
  11. Sefton, J. A. & Weale, M. R., 1996. "The net national product and exhaustible resources: The effects of foreign trade," Journal of Public Economics, Elsevier, vol. 61(1), pages 21-47, July.
  12. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
  13. Weitzman, Martin L, 1997. " Sustainability and Technical Progress," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 1-13, March.
  14. Hamada, Koichi & Iwata, Kazumasa, 1984. "National Income, Terms of Trade and Economic Welfare," Economic Journal, Royal Economic Society, vol. 94(376), pages 752-71, December.
  15. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
  16. John Hartwick, 1977. "Intergenerational Equity and the Investment of Rents from Exhaustible Resources in a Two Sector Model," Working Papers 281, Queen's University, Department of Economics.
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