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Endogenous Growth, Asymmetric Trade And Resource Taxation

Date Added: Aug 2010
Format: PDF

Since 1980, the aggregate income of oil-exporting countries relative to that of oil-poor countries has been remarkably constant despite structural gaps in productivity growth rates. This stylized fact is analyzed in a two-country model where resource-poor (Home) and resource-rich (Foreign) economies display productivity differences but stable income shares due to terms-of-trade dynamics. The authors show that Home's income share is positively related to the national tax on domestic resource use, a prediction confirmed by dynamic panel estimations for sixteen oil-poor economies.