An Oil-Driven Endogenous Growth Model

In this paper we show that the abundance of a natural resource such as oil need not present a curse for the domestic economy, dooming the non-oil sector to secondary status and a long period of stagnation and decline. Rather oil revenues can themselves be source of economy wide growth. What is required is the judicious use of oil revenues, in our case the channelling oil revenues into government capital/infrastructure that will complement private capital. We show that in such cases economy wide growth need not arise at the expense of other government services. In the steady state government consumption can grow in line with private consumption, in our case at the rate dictated by household preferences.