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Resource rents, savings behavior, and scenarios of economic development

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  • Sadik-Zada, Elkhan Richard

Abstract

The paper revisits the nexus between natural resources and economic growth from the lens of development economics. It augments the traditional dual-sector economy model by the assumption that in addition to capitalists, also workers contribute to the capital accumulation through private savings out of their wage income. The proposed differential game theory model of the interaction between the public and the elites identifies two realistic open loop Nash and three Stackelberg scenarios for the management of the commodity driven budget surplus. Based on the conventional transversality conditions, the model detects a progressing decay of social cohesion and institutional quality. It shows that at the early stages of the exploitation of the natural resource riches, both the public and elites enable a rather modernization-friendly scenaros. At the rather advanced stages of the exploitation of natural resources both groups try to maximize their short-term private benefits and by doing so protract or even inhibit the process of economic modernization. The study finds that the savings behavior of the workers has a positive modernization effect. Nevertheless, workers’ savings cannot fully offset the negative modernization effects of the inferior management of natural resource revenues.

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  • Sadik-Zada, Elkhan Richard, 2023. "Resource rents, savings behavior, and scenarios of economic development," Resources Policy, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:jrpoli:v:81:y:2023:i:c:s0301420722007012
    DOI: 10.1016/j.resourpol.2022.103258
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    More about this item

    Keywords

    Dual economy; Natural resources; Open loop solutions; Nash equilibrium; Stackelberg equilibrium; Capital-intensity;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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