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The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies

Ohad Raveh ()

MPRA Paper from University Library of Munich, Germany

Abstract: Natural resource abundance is a blessing for some countries, yet is a curse for others. The degree of fiscal decentralization may account for this divergent outcome. Resources tend to locate in remote, non-agglomerated, and sparsely populated areas; a high degree of fiscal decentralization gives a resource abundant region an advantage in the inter-regional tax competition over capital so that it attracts some capital from agglomerated and densely populated regions. Given a sufficiently high agglomeration level, any such movement of capital would bring a loss of output in the agglomerated region that outweighs the sum of gains from resource income and increased output in the remote region – so that aggregate product in the economy drops. This theory is empirically tested -and confirmed- building on Sachs and Warner’s influential works on the resource curse, employing the World Bank’s Fiscal Decentralization Indicators, and taking the United States as a case study.

Keywords: Natural Resources; Economic Growth; Resource Curse; Fiscal Decentralization; Agglomeration Economies; Tax Competition (search for similar items in EconPapers)
JEL-codes: C21 O13 O18 O57 Q33 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-cis, nep-geo, nep-pbe and nep-ure
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