Resources and North-South trade: a macro analysis in open economies

The paper explores the impacts of resource export policies on major macro variables of the exporter and the importer economies. There are two regions, North and South, trading resources for industrial goods. Each region consumes two goods (basic consumption goods and industrial goods) and produces both using three inputs: capital labor and resources. The relative prices in five markets (of factors and goods) as well as the volumes of output, consumption and international trade are all determined endogenously at a general equilibrium. The results give conditions both for positive and for negative outcomes from moves towards world equilibrium with higher volumes of resource exports. Under certain conditions, increased resource exports produce price distortions with negative consequences. When the South's technologies are dual and its traditional sector uses mostly labor, and the North has a more homogeneous economy and a high rate of profit, at the new equilibrium real wages, employment and consumption decrease in the South, and its terms of trade and real revenues worsen. This is traced to the negative impact of increased resource exports on the domestic terms of trade between the traditional and the industrial sectors. However, the profits of the south increase, thus explaining in part the existence of trade. More favourable outcomes are obtained when the exporting economy is more homogeneous, and sufficient conditions are given for an export policy to improve the welfare of the exporting country, as well as its international terms of trade and export revenues.