Windfalls, structural transformation and specialization

Karlygash Kuralbayeva and Radoslaw Stefanski

Journal of International Economics, 2013, vol. 90, issue 2, 273-301

Abstract: Macro cross-country data and micro US county data indicate that resource-rich regions have small but relatively productive manufacturing sectors and large but relatively unproductive non-manufacturing sectors. We suggest a process of specialization to explain these facts. Windfall revenue induces labor to move from the (traded) manufacturing to the (non-traded) non-manufacturing sector. A self-selection of workers takes place. Only those most skilled in manufacturing sector work remain in manufacturing. Workers that move to non-manufacturing however, will be less skilled at non-manufacturing sector work than those who were already employed there. Resource-induced structural transformation thus results in higher productivity in manufacturing and lower productivity in non-manufacturing. We construct and calibrate a two-sector, open economy model of self-selection and show that exogenous cross-country variation in natural resource endowments is large enough to explain the direction and magnitude of sectoral employment and productivity differences between resource-rich and resource-poor regions. The model implies that low aggregate productivity found in some resource-rich countries is not caused by a resource-induced decline of a relatively productive manufacturing sector. Rather, the higher manufacturing productivity in those countries is a consequence of manufacturing's smaller size.

Keywords: Structural transformation; Dutch disease; Productivity; Natural resources; Resource curse; Self-selection (search for similar items in EconPapers)
JEL-codes: F16 O11 O13 O41 Q33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Working Paper: Windfalls, Structural Transformation and Specialization (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:90:y:2013:i:2:p:273-301

DOI: 10.1016/j.jinteco.2013.02.003

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