nep-ara New Economics Papers
on Arab World
Issue of 2009‒09‒11
one paper chosen by
Quentin Wodon
World Bank

  1. An Alternative Explanation for the Resource Curse: The Income Effect Channel By Arezki, Rabah; Alichi, Ali

  1. By: Arezki, Rabah; Alichi, Ali
    Abstract: 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.
    Keywords: resource curse; fiscal policy; investment and growth
    JEL: O11 O41 C81 C01 Q30
    Date: 2009–05

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