Journal of Economic Growth

, Volume 4, Issue 3, pp 277–303

Why Do Resource-Abundant Economies Grow More Slowly?

  • Francisco Rodriguez
  • Jeffrey D. Sachs
Article

Abstract

This article suggests an alternative explanation for why resource-rich economies have lower growth rates: because they are likely to be living beyond their means. It is shown that overshooting the steady state's equilibrium consumption and investment can be optimal in a Ramsey growth model with natural resources. Therefore, the economy will converge to its steady state from above, displaying negative growth rates on the transition. A dynamic general equilibrium model is calibrated to the Venezuelan economy and shown to approximate the economy's performance over the oil boom years adequately.

natural resources economic growth Venezuela computable general equilibrium models 

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Francisco Rodriguez
    • 1
  • Jeffrey D. Sachs
    • 2
  1. 1.Department of EconomicsUniversity of MarylandCollege Park
  2. 2.Harvard University and Harvard Institute for International DevelopmentCambridge

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