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Natural Resources and Economic Growth: A Quantitative Exploration

Rodríguez, Francisco; Sachs, Jeffrey D.

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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Academic Units
Earth Institute
Published Here
October 1, 2009
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