Economic growth is the foundation on which social and economic development rests. It helps to create jobs, generate income opportunities and reduce poverty. When inclusive and sustained, growth can also promote political and social stability. It is therefore not surprising that it is at the top of most governments’ agendas. The Long Term Growth Model (LTGM) is a simple, transparent and easy-to-use suite of tools to help policymakers assess what growth paths are feasible in their country, and how growth can be accelerated and sustained.
This paper extends the LTGM with the addition of a natural resource sector to analyse how long-run growth evolves in resource-rich countries and the growth impacts of price shocks and resource discoveries. In the LTGM-NR, commodity price shocks affect long-term economic growth through physical investment rates. It also vaptures the effect of other (non-resource) growth fundamentals in resource-rich economies, and it is better suited to general growth analysis in these countries than the standard LTGM.
However, the LTGM-NR is a supply-side model, and so does not capture the short-run effects of price and discovery shocks that operate through aggregate demand.