Natural Resources, Innovation, and Growth

Elissaios Papyrakis, Institute for Environmental Studies, Free University Amsterdam

This paper investigates the relationship between resource abundance and innovation, as a
transmission mechanism that can elucidate the resource curse hypothesis; i.e. the observed
negative impact of resource wealth on income growth. First we present empirical data that strongly
suggest a negative impact of natural wealth on innovation levels. Then, we develop a variation of
the Ramsey-Cass-Koopmans model with endogenous growth to explain the phenomenon. In this
model, consumers trade off leisure versus consumption, and firms trade off innovation efforts
versus manufacturing. For this model, we show that an increase in resource income frustrates
economic growth in two ways: directly by reducing work effort and indirectly by inducing a
smaller proportion of the labor force to engage in innovation.

Date: 09 November-00 0000