IMF Working Papers

An Alternative Explanation for the Resource Curse: The Income Effect Channel

By Ali Alichi, Rabah Arezki

May 1, 2009

Download PDF

Preview Citation

Format: Chicago

Ali Alichi, and Rabah Arezki. An Alternative Explanation for the Resource Curse: The Income Effect Channel, (USA: International Monetary Fund, 2009) accessed December 4, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper provides an alternative explanation for the "resource curse" based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the non-resource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating non-hydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over 1992-2005.

Subject: Balance of payments, Capital flows, Current spending, Environment, Expenditure, Income, National accounts, Natural resources

Keywords: Capital flows, Current spending, Equals 0.29, Estimation coefficient, Estimation result, Fiscal policy, Goods movement, Income, Income effect, Income effect channel, Income effect explanation, Investment and growth, Natural resource revenue, Natural resources, NH-GDP growth, Open economy, Price effect, Resource curse, Resource sector of the economy, Sector GDP growth, WP

Publication Details

  • Pages:

    24

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2009/112

  • Stock No:

    WPIEA2009112

  • ISBN:

    9781451872590

  • ISSN:

    1018-5941

You May Also Be Interested In...

Tajikistan: Public Investment Management Assessment with the Climate Module

November 29, 2024

Tonga: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tonga

November 25, 2024

Morocco: Second Review Under The Arrangement Under the Resilience and Sustainability Facility-Press Release; Staff Report; and Statement by the Executive Director for Morocco

November 25, 2024

Remittances in Times of Uncertainty: Understanding the Dynamics and Implications

November 22, 2024