Natural Resources: Curse or Blessing?

Figure 1: Growth and natural resource dependence

-Republic     „     ,

Rwanda

Fuels, ores and metals exports in percent of merchandise exports 1970-2002
Source: World Development Indicators, World Bank

Figure 2: Natural resource dependence reduces competitiveness

Relative
price of
non-
traded
goods

Fraction of labour in non-traded sector

Key: A resource boom shifts A to A, so a shift from the traded to non-traded sector and
real appreciation. With time relative productivity of the traded declines if the
elasticity of substitution in demand goods is less than unity. This shifts the
equilibrium from A to A' and eventually to B. In the long run there is real
depreciation and the allocation of labour is returned to its original level.

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