Arezki, Rabah and Alichi, Ali (2009): An Alternative Explanation for the Resource Curse: The Income Effect Channel.
Download (546Kb) | Preview
The paper provides an alternative explanation for the “resource curse” based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the non-resource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating non-hydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over 1992–2005.
|Item Type:||MPRA Paper|
|Original Title:||An Alternative Explanation for the Resource Curse: The Income Effect Channel|
|Keywords:||resource curse, fiscal policy, investment and growth|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q30 - General
|Depositing User:||Rabah Arezki|
|Date Deposited:||06. Sep 2009 15:08|
|Last Modified:||12. Feb 2013 15:16|
Arellano, Manuel and Stephen Bond, 1991, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,” Review of Economic Studies, Vol. 58, pp. 277–97.
Auerbach, A. and L. Kotlikoff, 1987, Dynamic Fiscal Policy, Cambridge, MA: Cambridge University Press.
Besley D., Kuh E. and R. Welsch, 1980, Regression Diagnostics: Identifying Influential Data and Sources of Colinearity, New York: Wiley.
Blundell, R and S. Bond, 1998, “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,” Journal of Econometrics, 87(1), pp. 115–143.
Corden, W., 1984, “Booming sector and Dutch disease economics: Survey and consolidation,” Oxford Economic Papers, Vol. 36, pp. 359–380.
Davidson R. and J. MacKinnon, 1993, Estimation and Inference in Economics, Oxford University Press, New York
Gelb, A. and Associates, 1988,Oil Windfalls: Blessing or Curse?, World Bank: Oxford University Press.
Hausmann, R. and R. Rigobon, 2003, “An Alternative Interpretation of the ‘Resource Curse’: Theory and Policy Implications,” NBER Working Papers 9424, National Bureau of Economic Research, Inc.
Husain A., Tazhibayeva K. and A. Ter-Martirosyan, 2008, “Fiscal Policy and Economic Cycles in Oil-Exporting Countries,” IMF Working Paper No. 08/253.
ICRG, 2005, Brief Guide to the Rating System, International Country Risk Guide, Political Link Service Group, New York.
International Monetary Fund, 2007a, Regional Economic Outlook, Middle East and North African Department, Washington, D.C.
International Monetary Fund, 2007b, Exchange Rate Arrangements and Exchange Rate Restrictions, Washington, D.C.
International Monetary Fund, 2007c, Information Notice System (INS).
Khan, M. S. 1996, Government Investment and Economic Growth in the Developing World. The Pakistan Development Review 35, 419-439. 19
Ossowski, R., M. Villafuerte, P.A. Medas and T. Thomas 2008, “Managing the Oil Revenue Boom: The Role of Fiscal Institutions,” Occasional Paper 260 (Washington, D.C.: International Monetary Fund).
Robinson J., Torvik, Ragnar and Verdier, Thierry, 2006, “Political Foundations of the Resource Curse,” Journal of Development Economics, Elsevier, Vol. 79(2), pp. 447-468, April.
Rodrick, D., A. Subramanian, and F. Trebbi, 2004, “Institutions rule: the primacy of institutions over geography and integration in economic development,” Journal of Economic Growth, Vol. 9, pp. 131–165.
Sachs, J. and A. Warner, 1995 and revised 1997, “Natural resource abundance and economic growth,” in Leading Issues in Economic Development, ed. by G. Meier and J. Rauch (Oxford: Oxford University Press).
Sachs, J. and A Warner, 2001, “The curse of national resources,” European Economic Review, Vol. 45, pp. 827–838.
Sala-i-Martin, X. and A. Subramanian, 2003, “Addressing the natural resource curse: An illustration from Nigeria,” NBER Working Paper 9804, Cambridge, Mass.
Spatafora, N. and A. Warner, 2001, “Macroeconomic and Sectoral Effects of Terms -of-Trade Shocks -The Experience of the Oil-Exporting Developing Countries,” IMF Staff Paper 134/99, October: 1–56.
Tanzi, V. and L. Schuknecht, 2000, Public Spending in the 20th Century: A Global Perspective. Cambridge and New York: Cambridge University Press.
Tornell, A. and P.R. Lane, 1999, “The voracity effect,” American Economic Review, Vol. 89 (1), pp. 22–46.
Wijnbergen, S. van, 1984, “The Dutch disease: A disease after all?” Economic Journal, Vol. 94 (373), pp. 41–55.
World Bank, 2007, World Development Indicators, The World Bank, Washington DC.