S. MANSOOB MURSHED
This chapter presents a short-run theoretical macroeconomic model of a small open economy endowed with a natural resource exporting sector to explore the links between natural resources, economic growth, and economic policy. 1 It follows the sectoral delineation between traded and non-traded goods outlined in Sachs (1999). That paper attempts to differentiate between the economic development experience of East Asia and Latin America. The most important feature of Sachs' dichotomy is that East Asian economies rely more heavily on manufactured exports, whereas Latin America has a relatively greater share of natural resource intensive exports. According to Sachs (1999), Latin America, when compared to East Asia, exhibits a pattern of growth associated with natural-resource abundance. This in turn implies that its long-run growth rates will be less impressive than in East Asia.
By way of general motivation, let us start from the premise that a country with a greater endowment of natural resources relative to the rest of the world may be blessed for the present, but will eventually be subjected to a 'winners curse'. In other words, its economic performance, in the long run, will be worse than that of countries that have a relatively lower resource endowment. Also countries placing a heavier reliance on natural resource based goods in their production structure will experience greater cyclical fluctuations in their trend national income, compared to nations that have a more diversified production base.
The model in this chapter involves three sectors: a resource based commodity, a non-traded good and a traded goods sector. It examines short-run effects on the economy of resource booms, devaluation, and a consumption tax on the non-traded good. Within a single basic analytical framework, typologies are developed, distinguishing between what could be the East Asian and Latin American experience. The model is not a growth model involving the accumulation of produced, human and social capital. The short-run results contained in the chapter