A mixed blessing - Natural resources and economic growth

This paper diagnoses the symptoms of the Dutch disease in a two-sector stoc hastic endogenous growth model. A productive, low-skill-intensive primary s ector causes the currency to appreciate in real terms, thus hampering the d evelopment of a high-skill-intensive secondary sector and thereby reducing growth. Moreover, the volatility of the primary sector generates real-excha nge-rate uncertainty and may thus reduce investment and learning in the sec ondary sector and hence also growth. Cross-sectional and panel regressions based on data for 125 countries in the period 1960-1992 confirm a statistic ally significant inverse relationship between the size of the primary secto r and economic growth, but not between the volatility of the real exchange rate and growth.