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UNU-WIDER Development Problems in Natural Resource-based Growth Models

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Development Problems in Natural Resource-based Growth Models

Project name/title
Development Problems in Natural Resource-based Growth Models
Year:
1998
Theme:
Globalization and Trade
Abstract:
In the top rank of the GDP/c league, one finds countries like Japan and Hong-Kong which are completely devoid of natural resources such as land, forests, oil and other minerals, as well as others like Finland and Kuwait where the natural wealth of the country has played an important role in development. The same can be said for the bottom ranks of the GDP/c league.In principle, it would seem preferable for a country to be able to count on a good stock of natural resources. Over the short term, the economic rent this stock generates can help sustain living standards, while allowing resources to be assigned to investment, export diversification and the development of human capital. Yet, the recent growth and export performance of the developing and several developed countries with large endowments of natural resources have been mixed. In addition, environmental conditions in these countries have often deteriorated. The most eloquent example of a country caught in this 'natural resource trap' is Nigeria, where a considerable flow of petrodollars has not brought about any growth and export diversification and where the situation in domestic agriculture, environmental conditions, human capital and foreign debt is now far worse than it was before the discovery of the oil fields. A similar situation is now emerging in Russia. Despite its vast endowment of human capital, this country is shaping its new growth pattern around its resource sector, the output of which accounts now for over three quarters of total exports. The evidence reviewed in the literature suggests that a rich endowment of natural resources hampers export diversification, the development of human capital and the protection of the environment. There is also little evidence of any advantage in terms of short-run growth performance. By the same token, it would appear that a rich endowment of human capital and an open trade policy favour export diversification, growth and the development of skill-intensive, low-pollution industries. However, there is no a priori reason why the advantage constituted by a plentiful supply of natural resources must necessarily become an economic curse. Countries like Malaysia, Indonesia and Botswana have avoided such problems and have used their economic rent for the development of the trade sector at modest environmental cost. What macroeconmic, trade, environmental and human capital development policies have been adopted to obtain these results in these three countries and not in others? What political and economic factors have contributed to the effective utilization of the economic rent?
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