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Inclusion of Firm Heterogeneity in Resource Boom-Bust Cycle Literature

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Trade Logistics in Landlocked and Resource Cursed Asian Countries

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Abstract

This chapter combines the resource curse and firm heterogeneity to estimate how a resource boom will affect non-resource-intensive productivity. The cost of production for the non-resource sector is high due to expensive domestic currency, volatile commodity prices, and rent-seeking activities. The economic diversification leads to long-term growth by generating spill-over effects and increasing returns of scale, but effective economic diversification demands a greater understanding of how a group of firms behave during a resource boom. While low-productivity firms can improve their productivity with low-cost options, highly productive firms actually experience a decline in productivity due to the high cost of shifting to other opportunities, so the net effect is a stagnation of aggregate productivity that is consistent with the resource curse hypothesis.

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Notes

  1. 1.

    Resource abundance, measured by natural resource capital per capita, may not be resource dependent when measured by the ratio of natural resource exports in gross domestic product (Badeeb et al., 2017).

  2. 2.

    One can argue that non-economic factors are also at play here. Poor institutions, governance, corruption, lack of skill development, and exploitation by resource-producing multinational enterprises are also important factors.

  3. 3.

    Iscan (2015) used the general equilibrium analysis to study the changing share of employment due to changes in windfall revenue and sectoral productivity in Canada during 1960–2008, and found an overall decline in the share of employment in the manufacturing sector (1.14 percent per annum). In the 2000s, when the Canadian terms of trade improved drastically, this effect was very strong.

  4. 4.

    There is also evidence that government spending on education (supply side) and school enrolment at all levels (demand side) are inversely related to natural-resource dependence (Gylfason, 2001).

  5. 5.

    Most studies on export diversification used the Herfindahl–Hirschman index of export values across a given range of products and sectors to capture and measure export diversification. This measure captures the intensive margin (existing products) and extensive margin (new products), but export diversification is often linked to the extensive margin because a shift in export composition is expected.

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Authors and Affiliations

  1. School of Accounting, Economics & Finance, University of Wollongong, Wollongong, NSW, Australia

    Kankesu Jayanthakumaran, Mohammad Tariful Bari & Nelson Perera

Authors
  1. Kankesu Jayanthakumaran
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  2. Mohammad Tariful Bari
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  3. Nelson Perera
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Correspondence to Kankesu Jayanthakumaran .

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Editors and Affiliations

  1. School of Accounting, Economics & Finance, University of Wollongong, Wollongong, NSW, Australia

    Kankesu Jayanthakumaran

  2. School of Information, Systems and Modelling, Faculty of Engineering and Information Technology, University of Technology Sydney, Sydney, NSW, Australia

    Nagesh Shukla

  3. School of Accounting, Economics & Finance, University of Wollongong, Wollongong, NSW, Australia

    Charles Harvie

  4. UN House, International Think Tank for LLDCs, Ulaanbaatar, Mongolia

    Odbayar Erdenetsogt

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Jayanthakumaran, K., Bari, M.T., Perera, N. (2019). Inclusion of Firm Heterogeneity in Resource Boom-Bust Cycle Literature. In: Jayanthakumaran, K., Shukla, N., Harvie, C., Erdenetsogt, O. (eds) Trade Logistics in Landlocked and Resource Cursed Asian Countries . Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-13-6814-1_3

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  • DOI: https://doi.org/10.1007/978-981-13-6814-1_3

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