Frontier Expansion and Economic Development
Posted: 28 Apr 2005
Although finding "new frontiers", or "reserves", of natural resources to exploit has been the basis of much of global economic development for the past five hundred years, frontier-based development does not appear to be producing sustained, high rates of growth in today's poorer economies. Through a two-sector model of frontier expansion and economic growth in a resource-dependent small open economy, this paper demonstrates that such expansion will lead inevitably to a boom and bust pattern of long-run development, even if the economy's terms of trade or commodity prices remain unchanged. Initially, it is always optimal for the economy to choose the maximum rate of frontier expansion, and thus ensure an immediate economic boom. However, an eventual economic decline is unavoidable. This result provides an alternative explanation of recent empirical evidence that resource-abundant developing countries display lower than expected long-run rates of growth.
JEL Classification: O13, O41, Q32, Q33
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