Resource Wealth, Innovation and Growth in the Global Economy

Pietro Peretto and Simone Valente

No 10/124, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We analyze the relative growth performance of open economies in a two-country model where different endowments of labor and a natural resource generate asymmetric trade. A resource-rich economy trades resource-based intermediates for final manufacturing goods produced by a resource-poor economy. Productivity growth in both countries is driven by endogenous innovations. The effects of a sudden increase in the resource endowment depend crucially on the elasticity of substitution between resources and labor in interme- diates' production. Under substitution (complementarity), the resource boom generates higher (lower) resource income, lower (higher) employment in the resource-intensive sector, higher (lower) knowledge creation and faster (slower) growth in the resource-rich economy. The resource-poor economy adjusts to the shock by raising (reducing) the relative wage, and experiences a positive (negative) growth effect that is exclusively due to trade.

Keywords: Endogenous Growth; Endogenous Technological Change; Natural Resources; International Trade. (search for similar items in EconPapers)
JEL-codes: E10 F43 L16 O31 O40 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-01
New Economics Papers: this item is included in nep-cse, nep-dge, nep-ene, nep-env, nep-fdg, nep-knm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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