Raveh, Ohad (2010): Dutch disease, factor mobility costs, and the ‘Alberta Effect’ – The case of Federations.
Download (271kB) | Preview
Do reduced costs of factor mobility mitigate ‘Dutch Disease’ symptoms, to the extent that they are reversed? The case of federations provides an indication they do. By investigating 'Resource Curse' effects in all federations with available state-level data, it is observed that within federations resource abundance is a blessing, while between federations it is a curse, similar to results observed in previous cross-country studies. A theory is then presented in an attempt to explain the opposite results of the intra and cross federal (and previous cross-country) analyses. It is argued that the reduced costs of factor mobility within federations trigger an ‘Alberta Effect’ –where resource abundant regions exploit the fiscal advantage, provided by resource rents, to compete more aggressively in the inter-regional competition over capital, and as a result attract vast amounts of capital– which in turn mitigates, and even reverses, ‘Dutch Disease’ symptoms, so that ‘Resource Curse’ effects do not apply. Thus, this paper emphasizes the significance of the mitigating role of factor mobility in 'Dutch Disease' theory, and presents a novel mechanism (the ‘Alberta Effect’) through which this mitigation, and possible reversion, process occurs. The paper concludes with empirical evidence for the main implications of the model, taking the United States as a case study.
|Item Type:||MPRA Paper|
|Original Title:||Dutch disease, factor mobility costs, and the ‘Alberta Effect’ – The case of Federations|
|Keywords:||Natural Resources, Factor Mobility, Dutch Disease, Resource Curse, Tax Competition, Economic Growth|
|Subjects:||H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue|
|Depositing User:||Ohad Raveh|
|Date Deposited:||21. Jun 2011 14:30|
|Last Modified:||12. Feb 2013 13:14|
Acemoglu, D., Johnson, S., and Robinson A. J., 2000, The Colonial Origins of Comparative Development: An Empirical Investigation, American Economic Review, Vol. 91 No. 5, pp. 1369- 1401.
Annett, A., 2001, Social Fractionalization, Political Stability, and the Size of Government, IMF Staff Papers, Vol. 48, No. 3.
Aragon, S., and Rud J., (2009) ‘The blessing of natural resources: evidence from a Peruvian gold mine.’ Banco Central de Reserva del Peru Working Paper No. 2009-014.
Auty R. M., 2001, Resource Abundance and Economic Development, Oxford: Oxford University Press.
Baland, J. and M., Francois, P., 2000. Rent-seeking and resource booms. Journal of Development Economics 61, 527-542
Barro., R., 1991, Economic Growth in a Cross Section of Countries, Quarterly Journal of Economics, 106 (2), pp. 407-443.
Barro, R., and Lee, J., 2010, A New Data Set of Education Attainment in the World, 1950-2010, NBER Working Paper No. 15902.
Barro, R., and Sala-i-Martin, X., 1992, Convergence, Journal of Political Economy, 100(2), pp. 223-251.
Bartik, J. T., 1985, Business Location Decisions in the United States: Estimates of the Effects of Unionization, Taxes, and Other Characteristics of States, Journal of Business and Economic Statistics, Vol. 3(1).
Batina, R., 1990, Public goods and dynamic efficiency: The modified Samuelson rule, Journal of Public Economics, 41(3), pp. 389-400.
Boadway, R., 2006, Natural Resource Shocks and the Federal System: Boon and Curse?, Fiscal Federalism and the Future of Canada Conference Proceedings, Institute of Intergovernmental Relations.
Bobonis, G. J. (2008): ‘Endowments, Coercion, and the Historical Containment of Education,’ unpublished, University of Toronto. Brennan, G., Buchanan, J., 1980. The Power to Tax: Analytical Foundations of a Fiscal Constitution. Cambridge University Press, New York.
Browning, E., 1976, Marginal cost of public funds, Journal of Political Economy, 84, pp. 283-298. Brueckner, J. K., 2003, Strategic Interaction Among Governments: An Overview of Empirical Studies, International Regional Science Review, Vol. 26(2), pp. 175-188.
Brunnschweiler, C., 2008, Cursing or blessing? Natural resource abundance, institutions, and economic growth. World Development 36, Issue 3, pp. 399-419
Brunnschweiler, C., and H., Bulte, 2008, The resource curse revisited: A tale of paradoxes and red herrings. Journal of Environmental Economics and Management, 55, 3, pp. 248-264
Bucovetsky, S., 1991, Asymmetric Tax Competition, Journal of Urban Economics, Vol. 30(2), pp. 167-181.
Cai, T., and Treisman, D., 2005, Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy, American Economic Review, Vol. 95(3). Casello, F., Esquivel, G., and Lefort, F., 1996, Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics, Journal of Economic Growth, Vol. 1 (3), pp. 363-389. Caselli, F. and Guy M., 2009, Do oil windfalls improve living standards? Evidence from Brazil. NBER Working Paper No. W15550
Cecchetti, S. G., Mark, C. N., Sonora, R. J., 2002, Price Index Convergence Among United States Cities, International Economic Review, Vol. 43(4).
Coase, R., 1937, The nature of the firm, Economica, Volume 4, Issue 16, pp. 386-405
Corden, W.M, 1984, Booming sector and Dutch disease economics: survey and consolidation, Oxford Economic Papers, Vol. 36, No. 3, pp. 359-380
Corden, W.M., and J.P. Neary (1982) ‘Booming sector and de-industrialization in a small open economy’. The Economic Journal 92, 825-848
Culver, S. and D. Papell (2006), ‘Panel evidence of purchasing power parity using intranational and international data’. International macroeconomics: Recent developments. Nova Scotia Publishers.
Desai., R.M., Freinkman, L., and Goldberg, I., 2003, Fiscal federalism and regional growth: evidence from the Russian federation in the 1990s, World Bank Policy Research Working Paper No. 3138. De Soysa, I., 2002, Paradise is a bazaar? Greed, creed, and governance in civil war, Journal of Peace Research Vol. 39, No. 4, pp. 395–416.
De Soysa, I., 2000, The resource curse: Are civil wars driven by rapacity or paucity?’ in M. Berdal and D. Malone (eds), Greed and Grievance: Economic Agendas in Civil Wars, Boulder: Lynne Reiner: 113–35
Fearon, J., 2005, Primary commodity exports and civil war, Journal of Conflict Resolution, Vol. 49, No. 4, pp. 483–507.
Fearon, J. and Laitin, D., 2003, Ethnicity, insurgency and civil war, American Political Science Review, Vol. 97, No. 1, pp. 75–90.
Freedom House. 2008. Freedom in the World 2008: The Annual Survey of Political Rights and Civil Liberties. Available online at: http://www.freedomhouse.org/template.cfm?page=363&year=2006
Grieson, R., Hamovitch, W., Levenson, A. M., Morgenstern, R. D., 1977, The Effect of Business Taxation on the Location of Industry, Journal of Urban Economics, Vol. 4(2), pp 170-185.
Gylfason, T., Herbertsson, T.T. and G. Zoega, 1999, A mixed blessing: Natural resources and economic growth, Macroeconomic Dynamics 3, 204-225.
Gylfason, T., 2000, Resources, agriculture, and economic growth in economies in transition, Kyklos 53, 545-580.
Gylfason, T., 2001, Natural resources, education, and economic development, European Economic Review 45, 847-859.
Helliwell, J.F., 1981, Using Canadian oil and gas revenues in the 1980s: provincial and federal perspectives, in Barker, T. and Brailovsky, V., Oil or Industry? London: Academic Press.
Hines, J., 1997, Altered States: Taxes and the Location of Foreign Direct Investment in America, NBER Working paper No. 4397.
Hodler, R., 2006, The curse of natural resource in fractionalized countries, European Economic Review, Vol 50, Issue 6, pp. 1367-1386
Isham, J., Woolcock, M., Pritchett, L. and Busby, G., 2005, The varieties of rentier experience: How natural resource export structures affect the political economy of economic growth, The World Bank Economic Review, Vol. 2, No. 2, pp. 141-174.
Ismail, K., 2010, The structural manifestation of the 'Dutch Disease': The Case of Oil Exporting Countries, Working Paper 10/103, International Monetary Fund, Washington, D.C.
Kanbur, Ravi and Michael Keen, 1993, Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size, American Economic Review, September, 83,4, pp.877-92.
Krugman, P., 1991, Increasing returns and economic geography, Journal of Political Economy, Vol. 99, no. 3. La Porta, Rafael., Lopez-de-Silanes, Florencio., Shleifer,
Andrei., and Vishny, Robert., 1999, The Quality of Government, The Journal of Law, Economics, and Organization, 15 (1), pp. 222-279.
Lane, P. R. and Tornell, A, 1996, Power, growth and the voracity effect, Journal of Economic Growth, vol. 1, pp. 213–41.
Laroui, F. and Van der Zwaan B. C. C., 2002, Environment and multidisciplinarity: Three examples of avoidable confusion, Integrated Assessment 3, 360-369.
Leite, C. and J. Weidmann, 1999, Does mother nature corrupt? Natural resources, corruption and economic growth, IMF Working Paper No 99/85 (International Monetary Fund, Washington).
Li, S., Li, S., and Zhang, W., 2000, The Road to Capitalism: Competition and Institutional Change in China, Journal of Comparative Economics, Vol. 28(2), pp. 269-292.
Mankiw, G., Romer, D., and Weil, D., 1992, A Contribution to the Empirics of Economic Growth, Quarterly Journal of Economics, 107 (2), pp. 407-437.
Matsuyama K., 1992, Agricultural productivity, comparative advantage, and economic growth. Journal of Economic Theory, 58, 317-334. Martinez-Fritscher, A., and Musacchio A., 2010, Endowments, fiscal federalism, and the cost of capital for states: Evidence from Brazil, 1891-1930, Financial History Review, 17, 1.
Martinez-Fritscher, A., and Musacchio A., 2009, Can endowments explain regional inequality? State governments and the provision of public goods in Brazil, 1889-1930, unpublished manuscript.
McMahon, W.W., 1991, Geographical cost of living differences: An update. Journal of American Real Estate and Urban Economics Association 19: 426-450
Mehlum, H., Moene, K., and Torvik, R., 2006, Institutions and the resource curse, The Economic Journal, 116, pp. 1-20
Michaels, G., 2009, The long term consequences of resource based specialization. Discussion Paper. Centre for Economic Policy Research, London.
Monteiro, J., and Claudio, F., 2009, Resource Booms and Voracious Politicians: The Effects of Oil Shocks on Patronage, Rent-Seeking, and Elections,unpublished, PUC-Rio.
Montinola, G., Yingyi Q., and Barry R. W., 1996, Federalism, Chinese Style: The Political Basis for Economic Success, World Politics, Vol. 48(1), pp.50-81.
Naritomi, Joana, Rodrigo R. Soares, and Juliano J. Assuncao (2007): “Rent Seeking and the Unveiling of 'De Facto' Institutions: Development and Colonial Heritage within Brazil,” NBER Working Paper No. 13545.
Newman, J. R., Sullivan, H. D., 1988, Econometric analysis of business tax impacts on industrial location: what do we know and how do we know it?, Journal of Urban Economics, Vol. 23(2), pp. 215-234.
Olayele, B.F., 2010, The resource curse: a state and provincial analysis, REPA working paper, University of Victoria
Papyrakis, E. and R. Gerlagh, 2004, The resource curse hypothesis and its transmission channels, Journal of Comparative Economics, 32, 181-193.
Papyrakis, E., and Gerlagh, R., 2007, Resource abundance and economic growth in the United States. European Economic Review 51, 1011-1039
Poelhekke, S., Van der Ploeg, F., 2011, Do natural resources attract FDI? Evidence from non-stationary sector-level data, OxCarre Research Paper 51.
Premer, M., and U. Walz., 1994, Divergent regional development, factor mobility, and non-traded goods, Regional Science and Urban Economics, Vol. 24, pp. 707-722
Qian, Y., and Gérard R., 1998, Federalism and the Soft Budget Constraint, American Economic Review, December, Vol. 88(5), pp.1143-62.
Raveh, O., and Papyrakis, E., 2011, ‘Dutch Disease’ – Does it happen? Evidence from Canada, Unpublished manuscript.
Rodriguez, F. and J.D. Sachs, 1999, Why do resource-abundant economies grow more slowly?, Journal of Economic Growth 4, 277-303.
Roos, M., (2006) ‘Regional price levels in Germany’. Applied Economics 38(13), 1553-1566
Ross, M., 2001, Does oil hinder democracy?, World Politics, Vol. 53, pp. 297–322.
Ross, M., 2003, Oil, drugs and diamonds: The varying role of natural resources in civil war, in K. Ballentine and J. Sherman (eds), The Political Economy of Armed Conflict: Beyond Greed and Grievance, Boulder: Lynne Reiner Publishers: 47–70
Sala-i-Martin, X. and Subramanian, A., 2003, Addressing the natural resource curse: An illustration from Nigeria, NBER Working Paper No. 9804.
Sachs, J.D. and A.M. Warner, 1995, Natural resource abundance and economic growth. NBER Working Paper No. W5398
Sachs, J.D. and A.M. Warner, 1997, Fundamental sources of long-run growth, Journal of African Economics, pp. 335-376.
Sachs, J.D. and A.M. Warner, 1997b, Sources of Slow Growth in African Economies, American Economic Review 87, 184-188.
Sachs, J.D. and A.M. Warner, 1999, The big push, natural resource booms and growth, Journal of Development Economics 59, 43-76.
Sachs, J.D. and A.M. Warner, 2001, Natural resources and economic development: The curse of natural resources, European Economic Review 45, 827-838.
Slesnick, D.T., 2002, Prices and regional variation in welfare. Journal of Urban Economics 51: 446-468
Torvik, R., 2001, Learning-by-doing and the Dutch disease. European Economic Review 45, 285-306.
Torvik, R., 2002, Natural resources, rent-seeking, and welfare, Journal of Development Economics, vol. 67, issue 2, pp. 455-470.
Walden, M.L., 1998, Geographic variation in consumer prices: Implications for local price indices. Journal of Consumer Affairs 32: 204-226.
Wahba, J., 1998, The transmission of dutch disease and labour immigration, Journal of International Trade & Economic Development, Vol. 7, Issue 3, pp. 355-365.
Williamson, G. J., Migration and Urbanization, Handbook of Development Economics, Vol. 1 pp. 425-465.
Wilson, D. J., 1991, Tax Competition With Interregional Differences in Factor Endowments, Regional Science and Urban Economics, Vol. 21(3), pp. 423-451.
Wilson, D. K., 1999, Theories of tax competition, National Tax Journal, Vol. 52(2), pp. 269-304.
Van der Ploeg, F., 2010, Natural Resources: Curse or Blessing?, CESifo Working Paper No. 3125
Vermeulen, W., 2010, On Dutch disease and immigration, University of Luxemburg, Unpublished manuscript.
Vicente, P. C. (2008): “Does Oil Corrupt? Evidence from a Natural Experiment in West Africa,” unpublished, Oxford University.
Zhang, x., L. Xing, S. Fan, and X. Luo, 2008, Resource abundance and regional development in China, Economics in Transition, 16, 1, pp. 7-29
Zodrow, G., and Mieszkowski, Z., 1986, Pigou, tiebout, property taxation, and the underprovision of local public goods, Journal of Urban Economics, 19, pp. 356-370