Why Do Resource-Abundant Economies Grow More Slowly?

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.

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Rodriguez, F., Sachs, J.D. Why Do Resource-Abundant Economies Grow More Slowly?. Journal of Economic Growth 4, 277–303 (1999). https://doi.org/10.1023/A:1009876618968

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  • natural resources
  • economic growth
  • Venezuela
  • computable general equilibrium models