Resource-based Regions, the Dutch Disease and City Development

Author Name TAKATSUKA Hajime  (Kagawa University) /ZENG Dao-Zhi  (Tohoku University) /ZHAO Laixun  (Kobe University)
Creation Date/NO. January 2013 13-E-001
Research Project Studies on the Structure of Japanese Economic Space and Japanese Supply Chains Sustaining Growth Under Globalization and Disaster Risks
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This paper examines the relationship between resource development and industrialization. When transport costs are high, regions with more valuable natural resources offer higher welfare than other regions. However, when transport costs decrease, firms begin to move out of the region, resulting in the Dutch disease, initially in terms of industry shares, but eventually in terms of welfare too when transportation is sufficiently free. If resource goods are also used as manufacturing inputs as well as final goods, they can substitute for labor when wages rise, which tends to alleviate the Dutch disease by keeping production costs down. The model thus provides helpful insight for cities trying to develop efficiently their limited resources.