Why Do Resource-Abundant Economies Grow More Slowly?

Author(s): Francisco Rodríguez and Jeffrey D. Sachs
Source: Journal of Economic Growth , Sep., 1999, Vol. 4, No. 3 (Sep., 1999), pp. 277-303

Published by: Springer

This article suggests an alternative explanation for why resource-rich economies have lower growth rates: be they are likely to be living beyond their means. It is shown that overshooting the steady state's equili consumption and investment can be optimal in a Ramsey growth model with natural resources. Therefore, economy will converge to its steady state from above, displaying negative growth rates on the transition. A dynamic general equilibrium model is calibrated to the Venezuelan economy and shown to approximate the economy’s performance over the oil boom years adequately.

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