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An Alternative Explanation for the Resource Curse: The Income Effect Channel

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  • Arezki, Rabah
  • Alichi, Ali

Abstract

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.

Suggested Citation

  • Arezki, Rabah & Alichi, Ali, 2009. "An Alternative Explanation for the Resource Curse: The Income Effect Channel," MPRA Paper 17130, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17130
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    Cited by:

    1. Randall Morck & Masao Nakamura, 2018. "Japan's Ultimately Unaccursed Natural Resources-financed Industrialization," NBER Chapters, in: Corporate Governance (NBER-TCER-CEPR Conference), National Bureau of Economic Research, Inc.
    2. Prof. Sarah O. Anyanwu & John O. Aiyedogbon Ph.D, . "Macroeconomic Determinants of Solid Mineral Export Price in Nigeria, 1981-2017," Journal of Economic and Sustainable Growth 3, Office Of The Chief Economist, Development Bank of Nigeria.
    3. Flory Dieck-Assad & Ernesto Peralta, 2013. "Energy and capital inputs: cornerstones of productivity growth in Mexico: 1965–2004," Empirical Economics, Springer, vol. 44(2), pages 563-590, April.
    4. Chandan Sharma & Debdatta Pal, 2021. "Revisiting resource curse puzzle: new evidence from heterogeneous panel analysis," Applied Economics, Taylor & Francis Journals, vol. 53(8), pages 897-912, February.

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    More about this item

    Keywords

    resource curse; fiscal policy; investment and growth;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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