An Alternative Explanation for the Resource Curse: The Income Effect Channel
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
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.
Series:
Working Paper No. 2009/112
Subject:
Balance of payments Capital flows Current spending Environment Expenditure Income National accounts Natural resources
English
Publication Date:
May 1, 2009
ISBN/ISSN:
9781451872590/1018-5941
Stock No:
WPIEA2009112
Pages:
24
Please address any questions about this title to publications@imf.org