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Natural Resources and Economic Growth

Published online by Cambridge University Press:  01 June 1999

Thorvaldur Gylfason
University of Iceland
Tryggvi Thor Herbertsson
University of Iceland and University of Aarhus
Gylfi Zoega
Birkbeck College, University of London


This paper diagnoses the symptoms of the Dutch disease in a two-sector stochastic endogenous growth model. A productive, low-skill-intensive primary sector causes the currency to appreciate in real terms, thus hampering the development of a high-skill-intensive secondary sector and thereby reducing growth. Moreover, the volatility of the primary sector generates real-exchange-rate uncertainty and may thus reduce investment and learning in the secondary sector and hence also growth. Cross-sectional and panel regressions based on data for 125 countries in the period 1960–1992 confirm a statistically significant inverse relationship between the size of the primary sector and economic growth, but not between the volatility of the real exchange rate and growth.

Research Article
© 1999 Cambridge University Press

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