9211672 (Resources Curse)

9211672 (Resources Curse) - Resources Curse 1 Running head:...

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Resources Curse 1 Running head: LITERATURE REVIEW FOR THE RESOURCES CURSE FOR GULF Literature Review for the Resources Curse for Gulf Arab States [Author’s Name] [Institution’s Name]
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Resources Curse 2 Literature Review for the Resources Curse for Gulf Arab States Introduction Although classical economists voiced concern in the early- nineteenth century that natural resources, notably land, might constitute a limit to per capita GDP growth, the profession has tended to regard natural resources as generally less important to economic growth than capital and labor. By the close of that century most believed that society could overcome the Malthusian population trap and the law of diminishing returns, so that sustained economic growth seemed likely, if not assured. Mainstream economists came to believe that increased capital and technological progress would prevent natural resources from ever constraining global economic growth. Natural resources therefore played little role in the growth models that were formulated in the mid-twentieth century, like the Cobb–Douglas and the Harrod–Domar models. The neo- classical model dominated mainstream economic growth theory from the mid-1950s to mid-1980s and is attributed to Solow (1957). In its most basic form, the model specifies that output is a function of capital and labor, constrained by the prevailing level of technology. The model shows that capital accumulation can raise the rate of economic growth over the medium-term (i.e. 50–100 years) but that long-term growth is limited by the rate
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Resources Curse 3 of growth of the labor force, assuming that the production function exhibits diminishing returns to capital; output has constant returns to scale and technological change is absent (Snowden and Vane, 1997). Two common criticisms of the neo-classical model are, first that a large part of the observed differences in the rate of economic growth are unexplained by the contributions of capital and labor. For example, the World Bank (1993) study of the East Asian economies found that capital and labor explain barely one- third of the growth differential between the economies of East Asia and those in Latin America. The large unexplained residual is attributed to total factor productivity (TFP), which is believed to be profoundly important. Second, the predicted convergence in the productivity of economies across the globe has not materialized and some observers detect continuing significant divergence (Pritchett, 1997), at least when the data are analyzed by country rather than aggregate population. More recently, a third criticism has emerged, namely that variations in a country's endowment of two additional forms of capital, natural capital (Sachs and Warner, 1995) and social capital (Acemoglu et al., 2002), play a significant role in differentiating economic performance. This paper focuses on how natural capital and SEEA can strengthen growth theory and refine development policy. It begins by measuring the contribution of
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9211672 (Resources Curse) - Resources Curse 1 Running head:...

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