Natural Resources

1
Natural Resources

• Thousands of years of history and the
  geographical concentration of technology and
  wealth has meant that having natural resources no
  longer appears to be a key to prosperity.
• Some of the wealthiest nations have negligible
  natural resource bases (Japan, Switzerland) and
  some of the most resource rich are very poor
  (Zaire/Congo).
• However, access to resources, particularly oil
  and important minerals, nevertheless remains
  critical and helps govern foreign and
  macroeconomic policy decisions of resource
  importers.

2
Resources and Development

• If one accepts Rostows model of how nations
  developed, raw materials often played a
  significant role (e.g. wool for textiles, coal
  and iron-ore for manufactures) in the build-up to
  take-off.
• Some structuralists, however, view natural
  resources in the post-colonial world as a
  liability - the so-called resource-curse
  theory.
• They use empirical data to point out how in many
  cases, being well endowed with natural resources
  has proven to be a barrier to achieving economic
  development for a given nation.

3
The resource curse

• The resource curse theory is a somewhat circular,
  chicken-egg debate.
• Many resource-rich countries in the post-colonial
  world have failed to take advantage of their
  resource riches (Latin America, Africa).
• They failed to adopt macro-economic policies that
  stimulated industry, etc., relying on resource
  earnings and little diversification.
• To maximize export revenues, governments
  overvalued their currencies (see my notes/hand
  out), making imports less expensive and exports
  more expensive.

4
Resource curse consequences

• Governments routinely ran budget deficits based
  on over-optimistic estimates of future revenues
  from raw materials.
• This in turn helped create debt, siphoning
  capital from potential, growth inducing
  investment and infrastructure development in
  order to make repayments.
• The longer a country participated in the
  core-periphery relationship and resource
  export-driven economic model, the harder it
  became to get away from their reliance on raw
  materials as the sole source of income.

5
Growth without resources?

• Relatively speaking, the E. Asian success
  stories, Singapore, Thailand, Korea, etc. have
  limited resource bases (even land - i.e.
  population densities are high).
• This is also true for China please note (explains
  many foreign policy experts concerns about
  Chinas worldview).
• Built wealth on long-range, manufacture-oriented
  macroeconomic policies.
• Development experts raise the issue of cultural,
  geographical and historical differences.
• First, several have Confucian-type philosophies,
  willing to sacrifice current consumption for
  future welfare strict policies high savings,
  taxes, investments deferred demand for
  manufactures.
• Second, they could readily secure resources from
  other developing countries and from Australia.

6
Other differences about Asian NICs

• Third, they benefited from geographical locations
  close to major shipping routes and with easy
  marine access to Japanese, American and European
  markets.
• Fourth, unlike Latin America, populations were
  largely rural at the beginning, and low-paid
  workers flooded to new factories as the urban
  process began.
• In contrast, Latin Americas relatively advanced
  state of development may have hindered its
  success, since as the global market place
  expanded, they sought to protect domestic
  industries and jobs, increasing costs, making
  Asia more competitive.

7
Other considerations

• Data has shown that the demand for raw materials
  does not grow as fast as the demand for consumer
  goods as global wealth increases, further
  accentuating the gap between the core and
  periphery.
• New technology, in theory a tool to eliminate
  borders and comparative advantages of
  resource-rich and resource-poor nations, will
  likely intensify economic power in the hands of
  industrialized nations due to the relative speeds
  at which it is adopted and changes and the
  protectionist measures taken by the developers
  with respect to intellectual property, etc.
• Look at relative statistics on computers, phone
  lines, internet, for example.

8
Resources and the Environment

• A move to greater environmental sustainability,
  recycling and reduction of waste, will adversely
  affect some resource-based economies (as it has
  with bauxite, copper), at least in the medium
  term because less raw materials will be needed
  and growth in demand will slow, even reverse.
• Many nations have over-tapped many of their
  renewable resources - lumber, fish stocks and
  soils - which will lead to declining production
  for many years, if not permanently.
• Environmental degradation caused by resource
  exploitation is affecting the economic viability
  of other key sectors such as tourism (e.g. coral
  reef destruction from polluted runoff) or
  biotechnology (e.g. destruction of potential
  genetic resources that would have been discovered
  in logged rainforests).