Resource windfalls, investment, and long-term income

Papyrakis, Elissaios and Gerlagh, Reyer (2006) Resource windfalls, investment, and long-term income. Resources Policy, 31 (2). pp. 117-128. ISSN 0301-4207

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Abstract

We develop a simple mechanism to explain why resource windfalls are likely to lower income levels in the long run. Most mineral-producing countries, in particular, fail to maintain incentives for savings and investment after positive resource shocks. Our analysis focuses on this savings–investment transmission channel through which resource rents affect welfare, and develops an OverLapping-Generations (OLG) model with features from endogenous growth theory to study the mechanism. In this model, savings adjust downwards to income from natural resources, investments adjust to savings, and subsequently the level of overall productivity falls. Resource affluence has 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 knowledge creation.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences Faculty of Social Sciences > School of Global Development (formerly School of International Development)
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Globalisation and CSR Faculty of Social Sciences > Research Groups > Climate Change
Depositing User:	Vishal Gautam
Date Deposited:	01 Jun 2006
Last Modified:	13 Feb 2023 11:30
URI:	https://ueaeprints.uea.ac.uk/id/eprint/16449
DOI:	10.1016/j.resourpol.2006.09.002

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