Harnessing Natural Resources for Sustainable Development: A Resource Exchange Model Approach

This study evaluates a possible alternative view on the literature on managing resource revenue for economic growth. Based on recent postulates that resource revenues should be primarily used to increase current consumption and capital stock through investments in both public and private sectors of the economy, we evaluate the implications of this policy on an economy plagued by low capital absorption, dysfunctional public and private institutions and corruption, while contrast our findings with the applicability of an alternative proposition. We established, using a replica of the Ramsey model and solving for optimal decisions with a Hamiltonian function, that the problems of corruption and dysfunctional institutions can potentially stymie any form of economic growth in the short term. This in turn crowds out needed investment and can deepen the problem of the popular natural resource curse. However, we introduce a form of international trade whereby resources are exchanged for needed capital investments as a possible alternative to managing resource booms. We established that this alternative will boost economic growth even in the presence of corruption and guarantee increased consumption and capital stock but only in the short run.