The article is about the effects of research boom into other industry such as the Jacob and the non-traded goods. The problem is that other sectors are also Mathematical models are used to determine the quantity of money being generated by the three industries due to the key variables which are land, labor, and capital. Also, land use is only used in export industries to establish the outcome of the situation. The article concluded that research boom destroyed market balance; change the prices of other commodities due unstable exchange rate, both the non-traded and imported goods.
The article to be discussed in this paper is entitled “The Distributional Impact of a Resource Boom,” by James H. Cassing and Peter G. Warr. The article talks about the effects of resource boom on the income of the factor owners and their members. The paper focused on the roles being played by excessive resources on the capital flows especially in the export and international industries.
Problems being Addressed
The main issue being discussed in the article is the so-called “de-industrialization” of those sectors whose resources are non-booming. Due to the presence of huge supply of a certain resource, the export industry gained a huge amount of profit. Other industries, especially in the import industry, are having difficulties in coping with the gains of the booming industries (Choi, 1988). As a result, they are acquiring more losses than gains because exchange rates are being affected by continuous export transactions, which is not favorable to export industry since the value of foreign currency is decreasing (Robinson, 2014). Furthermore, competition has become one-sided and more people are in danger of salary decrease, or worse is that they will lose their jobs (Cassing & Warr, 1985).
The article completely emphasized the importance of knowing the issue being addressed in the article. It is because the impacts of de-industrialization do not only affects industries, but also the consumers as well (Pfingsten & Wolff, 1995). The article is able to determine what issue must be emphasized which will help future research in studying these impacts.
Methodology and Data used in the Article
The article used an approach wherein a model of income distribution is used as reference. Both the exported and imported goods are represented and used as variables. The model also included capital, labor, and land as fixed and inelastic inputs. However, only the export industry will be granted with the land input in order to represent the abundance of resources of the industry. As a result, the model will adhere with the situation presented in the problem, and will create unequal distribution of income which will eventually favor the export industry (Pfingsten & Wolff, 1995). Considering outside factors such as trade policies and taxations, which vary in different countries, the model is able to produce equations which can represent income flows of the industries (Cassing & Warr, 1985).
Also, the article emphasized the effect of resource boom in the sectors which are not involved in any trades and negotiations. In line with the increase in export quantities, the demand of these sector’s products will increase because the export industry will require some of these goods in order to continue to their transaction. Moreover, since demand becomes higher, the price can be affected as well (Choi, 1988). By considering a certain variable to represent non-traded goods, the domestic market clearing equation is used to determine the price of the non-traded goods (Cassing & Warr, 1985).
These approaches are used to determine the general capital flow during this situation. The equation represents the behavior as a whole, so it can be applied to any data as long as the data met the requirements needed (Robinson, 2014). However, no data were presented in the article; but instead, the data description is in details. It is detailed because every variable is being defined in the article and audiences would be guided in the different terminologies used in the article. However, the method is quite academic in nature. Models and theories are stated to justify the different claims used in the article. The problem is that equations are complex and too many for the audiences to grasp all of them.
The article provided details on how the different factors stated above contributed to the way the economy runs during resource boom. These can be summarized using three different points. First is that resource boom destroys the market balance which resulted in change of price especially on non-traded goods because of the altered exchange rate. Second, income changes during resource boom, and but it is said to be less significant. Third, the prices of the imported goods are changed because other external factors such as policies and taxation are being affected as well during research boom (Cassing & Warr, 1985).
The research, in overall, considered scenarios which might happen in this crisis. The article will be significant in future studies because it is able to discuss the theorems by providing necessary equations and calculations. Although theoretical in nature, the models will provide accurate estimation since both the main variables and other external variables are also defined in the article.
I would like to acknowledge my professor for continuously providing new topics which I knew to be applicable in my future needs. I would also like to acknowledge my classmates for their never-ending effort to provide useful knowledge and accurate results.
Cassing, J., & Warr, P. (1985). The Distributional Impact of a Resource Boom. Journal of International Economics, 18, 301-319.
Choi, K. (1988). The Economics of Booming Sectors. Economics Discussion/Working Papers, 88(4).
Pfingsten, A., & Wolff, R. (1995). Resource booms in competitive equilibria with decreasing returns to scale. Journal of Economics, 61(2), 185-200.
Robinson, D. (2014). The Economics of Natural Resources. ECON-3056EL.