The big push, natural resource booms and growth

TLDR: In this paper, the authors present evidence from seven Latin American countries that natural resource booms are sometimes accompa- nied by declining per-capita GDP, and they present a model with natural resources, increasing returns in the spirit of big push models.

About: This article is published in Journal of Development Economics.The article was published on 1999-06-01 and is currently open access. It has received 1581 citations till now. The article focuses on the topics: Big push model & Resource curse.

Figures

Fig. 1. Profits as a function of n.

Fig. 5. Effect of a natural resource boom when the traded sector has increasing returns.

Table 2 Regression estimates of the association between natural resource intensity and growth in exports of manufactures, 1970–1989

Table 3 Basic data on natural resource intensity and growth, 11 Latin American countries

Fig. 3. Optimistic and pessimistic value functions.

Table 4 Natural resource booms: selected Latin American countries

Frequently asked questions

Q1. What are the contributions in "The big push, natural resource booms and growth" ?

In this paper the authors present evidence from seven Latin American countries that natural resource booms are sometimes accompanied by declining per-capita GDP. The authors present a model with natural resources, increasing returns in the spirit of big push models, and expectations to clarify some of the reasons this may happen. 

Q2. In what sector is the output produced by combining the intermediate inputs into a CES?

In the increasing returns sector, final output is produced by combining the N intermediate inputs into a CES production function. 

Q3. When did the foundations for the commodity lottery be put in place?

After the dust had settled from the Napoleonic wars and the struggles for independence in the early-nineteenth century, the foundations for the commodity lottery were put in place around the continent. 

Q4. What is the significance of the third column of Table 3?

To gauge the importance of natural resource abundance in accounting for slower growth among the eleven Latin American countries in this paper, the third column of Table 3 multiplies the estimated regression coefficient by the natural resource intensity variable for each country. 

Q5. What is the effect of the boom on the economy?

In this case the economy will suffer from the curse of natural resources: the boom will raise incomes temporarily but will frustrate the process of industrialization. 

Q6. What is the main purpose of this paper?

To focus on the economic effects of resource booms on growth, this paper starts with a brief review of some of the findings from cross country research. 

Q7. Why is the correlation between natural resource abundance and growth important?

This is potentially an important issue because it is an open question whether the observed negative association between growth and natural resource abundance is due to the fact that natural resource abundant countries are more likely to experience booms, busts and the accompanying uncertainty, or whether something else about resource abundance causes slower growth over the long term. 

Q8. What is the relationship between the Dutch disease and the growth of manufacturing exports?

The results show that countries that followed open trading policies tended to have higher growth in manufacturing exports, and that, after controlling for this, resource-poor countries tended to have slower growth in manufacturing exports. 

Q9. What is the relationship between natural resource abundance and growth?

If exports of manufactures are an importantengine of growth, and if the Dutch disease effects of natural resource abundance tends to squeeze this sector, then this provides a channel for the negative association between natural resource abundance and growth. 

Q10. What is the function of the boom?

In this sense the resource booms can serve the function of a big push, launching the economy into a self-fulfilling process of industrialization that it could not have achieved without the boom. 

Q11. What is the region to the right where only optimistic equilibria exist?

There is a region to the right where only optimistic equilibria exist, a region to the left where only pessimistic equilibria exist, and a region in the middle where both equilibriaexist.