The Impact of Easy Rents

Economic Growth under the Influence of Resources, Aid and Remittances

Diploma Thesis , 2007 , 61 Pages , Grade: 1,7

Economics - Finance

This paper addresses a ma jor paradox of the economic world, the seemingly negative impact of wealth in form of natural resources and development aid on growth. In the last 50 years a striking discrepancy in the economic performance of countries blessed by massive windfall gains became obvious. Robust empirical evidence was produced showing an inverse relation of both natural resources and development aid on economic growth. Regressions involving migrant's remittances did also yield ambiguous results under certain conditions. I try to embrace all windfall gains under the notion of "Easy Rents", characterised by easy generation of, easy access to and easy control over the abundant monetary assets.
The influence of the rents is proposed to work through biased price distortions, induced by sectoral competition, rent-seeking and \bad" economic policy, creating unfavourable conditions for the growth-driving tradables sector.
The conducted research and empirical testing indicates the appreciation of relative prices caused by political and economic disturbance. Following the results, a strong tendency of "Easy Rents" to exert deteriorating influence on a economy seems to be in place.

Inhaltsverzeichnis

• Introduction
• The Model
  • Fundamentals
  • Dynamics
• Easy Rents
  • Basics
  • Natural Resources
  • Development Aid
  • Remittances
  • Dutch Disease
  • The culprit "tau"
• Reality Check
• Concluding Remarks
• References
• A Data, Graphs and Analysis

Zielsetzung und Themenschwerpunkte

This paper investigates the paradoxical relationship between wealth in the form of natural resources, development aid, and economic growth. It aims to explain why countries with abundant windfall gains often experience stunted economic development, despite the potential for investment and prosperity. The paper focuses on the concept of "Easy Rents," which encompasses various forms of windfall gains, including natural resources, development aid, and remittances. It explores how these rents can distort prices, hinder growth in the tradable sector, and ultimately lead to negative economic outcomes.

• The impact of "Easy Rents" on economic growth
• The role of price distortions and sectoral competition
• The influence of rent-seeking and "bad" economic policy
• The Dutch Disease and its implications for resource-rich countries
• Empirical evidence and analysis of the relationship between windfall gains and economic performance

Zusammenfassung der Kapitel

The introduction sets the stage by highlighting the paradox of resource-rich countries often lagging behind in economic development. It introduces the concept of "Easy Rents" and its potential impact on economic growth. The model section lays out the theoretical framework, outlining the fundamentals and dynamics of economic growth in the presence of windfall gains. The "Easy Rents" chapter delves deeper into the concept, exploring its various forms, including natural resources, development aid, and remittances. It examines the mechanisms through which these rents can distort prices and hinder economic growth. The "Reality Check" chapter presents empirical evidence and analysis, examining the relationship between windfall gains and economic performance in real-world scenarios. The concluding remarks summarize the key findings and discuss the implications for policy and future research.

Schlüsselwörter

The keywords and focus themes of the text include "Easy Rents," "windfall gains," "natural resources," "development aid," "remittances," "Dutch Disease," "price distortions," "sectoral competition," "rent-seeking," "economic growth," and "economic performance." The paper explores the relationship between these concepts and their impact on the economic development of countries with abundant resources.

• College: Helmut Schmidt University - University of the Federal Armed Forces Hamburg (Professur für Volkswirtschaftslehre, insb. Finanzwissenschaft)
• Grade: 1,7
• Author: Cornelius Frhr. v. Lepel (Author)
• Publication Year: 2007
• Pages: 61
• Catalog Number: V132715
• ISBN (eBook): 9783640638420
• ISBN (Book): 9783640639083
• Language: English
• Tags: Economic Growth, Natural Resources, Development Aid, Remittances, Windfall Gains