Resource rents, savings behavior, and scenarios of economic development

Elkhan Richard Sadik-Zada

Resources Policy, 2023, vol. 81, issue C

Abstract: The paper revisits the nexus between natural resources and economic growth from the lens of development economics. It augments the traditional dual-sector economy model by the assumption that in addition to capitalists, also workers contribute to the capital accumulation through private savings out of their wage income. The proposed differential game theory model of the interaction between the public and the elites identifies two realistic open loop Nash and three Stackelberg scenarios for the management of the commodity driven budget surplus. Based on the conventional transversality conditions, the model detects a progressing decay of social cohesion and institutional quality. It shows that at the early stages of the exploitation of the natural resource riches, both the public and elites enable a rather modernization-friendly scenaros. At the rather advanced stages of the exploitation of natural resources both groups try to maximize their short-term private benefits and by doing so protract or even inhibit the process of economic modernization. The study finds that the savings behavior of the workers has a positive modernization effect. Nevertheless, workers’ savings cannot fully offset the negative modernization effects of the inferior management of natural resource revenues.

Keywords: Dual economy; Natural resources; Open loop solutions; Nash equilibrium; Stackelberg equilibrium; Capital-intensity (search for similar items in EconPapers)
JEL-codes: D72 O13 O16 O43 Q33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:81:y:2023:i:c:s0301420722007012

DOI: 10.1016/j.resourpol.2022.103258

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