An Alternative Explanation for the Resource Curse: The Income Effect Channel

Rabah Arezki () and Ali Alichi

MPRA Paper from University Library of Munich, Germany

Abstract: The paper provides an alternative explanation for the “resource curse” based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the non-resource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating non-hydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over 1992–2005.

Keywords: resource curse; fiscal policy; investment and growth (search for similar items in EconPapers)
JEL-codes: O11 O41 C81 C01 Q30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-ene and nep-mac
Date: 2009-05
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http://mpra.ub.uni-muenchen.de/17130/

Related works:
Working Paper: An Alternative Explanation for the Resource Curse: The Income Effect Channel (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:17130

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