Natural Resources, Investment and Long-Term Income

36 Pages Posted: 10 Aug 2004

See all articles by Elissaios Papyrakis

Elissaios Papyrakis

VU University Amsterdam - Institute for Environmental Studies (IVM)

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Date Written: May 2004

Abstract

We study the negative correlation between natural resource-abundance and long-term income focusing on the savings-investment channel. We first present empirical evidence on this channel and then develop an OverLapping-Generations (OLG) model to study the issue. In this model, savings adjust downwards to income from natural resources, and investment in capital contributes to knowledge creation, a feature based on endogenous growth theory. We analyze the link from resource income future income through savings and investment. Natural resources have two counteracting effects on income. In the short term, resource wealth augments income, but in the long-term, it decreases income through a crowding-out effect on capital and knowledge. We discuss different scenarios under which the resource curse is most likely to take place.

Keywords: Natural resources, Growth, Investment, OLG models

JEL Classification: E22, O13

Suggested Citation

Papyrakis, Elissaios and Gerlagh, Reyer, Natural Resources, Investment and Long-Term Income (May 2004). FEEM Working Paper No. 87.04. Available at SSRN: https://ssrn.com/abstract=556235 or http://dx.doi.org/10.2139/ssrn.556235

Elissaios Papyrakis (Contact Author)

VU University Amsterdam - Institute for Environmental Studies (IVM) ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands
+31 20 44 49502 (Phone)
+31 20 44 49553 (Fax)

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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