This question considers whether the abundance of natural resources facilitates or inhibits economic growth. Consider a simplified version of the model in Matsuyama (1992). There are two productive sectors in the economy, agriculture and manufacturing. Labor supply is constant and normalized to one. Production in the two sectors is given by: XMt= MF(nt) XAt= AG(1-nt) where nt is the share of labor working in manufacturing, Xit represents the output of sector i in time t. f(0) = 0; f' > 0; f'' < 0 for f = F;G. Both agricultural productivity (A) and manufacturing productivity (M) are fixed. All consumers share identical preferences given by Ut = log(cAt -) + log(cMt); (1) 3 where > 0 and cit denotes consumption of good i at time t. Assume sufficiently high agricultural productivity that AG(1)>. There is no technology to save across periods. Now consider the case where the economy is instead a small open economy. How does the productivity of the agricultural sector (A) affect the level of production, the share of the workforce in manufacturing and rate of economic growth? Explain