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Natural Resource, Investment and Long-Term Income

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  • Elissios Papyrakis
  • Reyer Gerlach

Abstract

We study the negative correlation between natural resource-abundance and long-term income focusing on the savings-investment channel. We first present empirical evidence on this channel and then develop an OverLapping-Generations (OLG) model to study the issue. In this model, savings adjust downwards to income from natural resources, and investment in capital contributes to knowledge creation, a feature based on endogenous growth theory. We analyze the link from resource income future income through savings and investment. Natural resources have two counteracting effects on income. In the short term, resource wealth augments income, but in the long-term, it decreases income through a crowding-out effect on capital and knowledge. We discuss different scenarios under which the resource curse is most likely to take place.

Suggested Citation

  • Elissios Papyrakis & Reyer Gerlach, 2004. "Natural Resource, Investment and Long-Term Income," DEGIT Conference Papers c009_035, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c009_035
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    File URL: http://degit.sam.sdu.dk/papers/degit_09/C009_035.pdf
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    References listed on IDEAS

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    Cited by:

    1. Parlee, Brenda L., 2015. "Avoiding the Resource Curse: Indigenous Communities and Canada’s Oil Sands," World Development, Elsevier, vol. 74(C), pages 425-436.
    2. Lucas Bretschger & Karen Pittel, 2005. "Innovative Investments, Natural Resources and Intergenerational Fairness: Are Pension Funds Good for Sustainable Development?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(III), pages 355-376, September.

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    More about this item

    Keywords

    Natural Resources; Growth; Investment; OLG models.;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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