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A MIXED BLESSING

Natural Resources and Economic Growth

Published online by Cambridge University Press:  01 June 1999

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

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.

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Research Article
Copyright
© 1999 Cambridge University Press
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