Why Do Resource-Abundant Economies Grow More Slowly?

Francisco Rodríguez and Jeffrey D Sachs

Journal of Economic Growth, 1999, vol. 4, issue 3, 277-303

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. Copyright 1999 by Kluwer Academic Publishers

Date: 1999
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