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Title: The Long Term Consequences of Resource-Based Specialisation

Citation Type: Journal Article

Publication Year: 2011

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Abstract: Using geological variation in oil abundance in the Southern US, I examine the long term effects of resource-based specialisation through economic channels. In 1890 oil abundant counties were similar to other nearby counties but after oil was discovered they began to specialise in its production. From 194090 oil abundance increased local employment per square kilometre especially in mining but also in manufacturing. Oil abundant counties had higher population growth, higher per capita income and better infrastructure.Does resource abundance facilitate or impede long term economic development? This question has long puzzled economists but despite much research the answer remains controversial.1 This article contributes to the debate by investigating the long term effect of resource abundance on local economic development in the US South.Some economic theories suggest that resource abundance can facilitate local development through various channels. For example, resource abundance may raise local demand for workers prospecting for natural resources, extracting them, or working in closely related upstream and downstream industries. This, in turn, may lead to population inflows that give rise to agglomeration effects, which raise local productivity.2But not all theories predict beneficial effects from resource abundance and some of the mechanisms discussed in the Resource Curse literature might actually hinder local economic development. First, some market linkages from natural resources (often referred to as Dutch Disease) might harm industries that are not closely related to the resource extraction industry. For example, wealth effects (sometimes known as spending effects) might depress labour supply or reallocate resources away from the tradeable non-resource sector. Or direct demand by resource extraction firms and workers may raise local prices, again hurting some producers. Another concern is that increases in local factor price volatility, due to commodity price volatility, might deter the entry of some firms. Second, natural resource revenues might increase local rent-seeking, patronage or embezzlement. While such concerns might seem minor for the US South today, they may have been more of a problem in the past and this may have had negative long lasting effects. Finally, pollution might make resource-abundant locations unattractive when incomes rise.

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Authors: Michaels, Guy

Periodical (Full): The Economic Journal

Issue: 551

Volume: 121

Pages: 31-57

Data Collections: IPUMS NHGIS

Topics: Labor Force and Occupational Structure, Other

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