Resource Abundance and Economic Development (W I D E R Studies in Development Economics)

357 Pages·2001·18.59 MB·English

by  R. M. Auty

TESOURCE ABUNDANCE AND ECONOMIC DEVELOPMENT
UNU WORLD INSTITUTE FOR DEVELOPMENT
ECONOMICS RESEARCH (UNU/WIDER)
was established by the United Nations University as its first
research and training centre and started work in Helsinki, Finland in
1985. The purpose of the Institute is to undertake applied research
and policy analysis on structural changes affecting the developing
and transitional economies, to provide a forum for the advocacy of
policies leading to robust, equitable, and environmentally sustainable
growth, and to promote capacity strengthening and training in
the field of economic and social policy-making. Its work is
carried out by staff researchers and visiting scholars in
Helsinki and through networks of collaborating
scholars and institutions around the world.
Resource Abundance and
Economic Development
Edited by
R. M . AUT Y
A study prepared for the World Institute for Development Economics
Research of the United Nations University (UNU/ WIDER)
OXFORD
UNIVERSITY PRESS
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Foreword
Until recently, most economists have neglected the role that natural resources play in
economic development. They have reported sharp differences in the performance of
differing countries and regions, but the connection with the natural resource endow-
ment has either been ignored or, at best, underestimated. This book corrects this
neglect by synthesizing research from numerous subfields within the economics
literature that have hitherto tended to be isolated from each other. The synthesis
builds a strong case for the fact that since the 1960s the natural resource endowment of
a developing country has strongly affected the efficiency with which it uses capital
and the nature of its long-term developmental trajectory.
The book distils the basic findings into two distinct models and then increases their
explanatory power by introducing permutations to allow for differences in the specific
character of the natural resource endowment. The first model is the staple trap model
and it is strongly associated with resource-abundant development. It shows how trade
policy closure leads to the misallocation of inputs that depress investment efficiency
and retard (and even reverse) the competitive diversification of the economy so that
the economy becomes vulnerable to a growth collapse. The staple trap model is also
associated with social tensions that stem from heightened income inequality, a retarded
passage through the demographic cycle, an unfavourable dependency/worker ratio,
the slow acquisition of skills and the tardy accumulation of the public social capital that
an increasingly sophisticated economy requires in order to lower transaction costs.
Recovery from a growth collapse is protracted because all forms of capital (natural,
physical, human and social) tend to be eroded. Policies are required that go beyond the
'prudent macro and micro' measures of the Washington Consensus. Governments
must also address more deep-seated issues that include bolstering the more positive
features of the political state, the accumulation of public institutional capital and
recognition of the various impacts that different forms of natural capital introduce into
the economic trajectory.
The second model of competitive industrialization is associated with resource-poor
countries, albeit not exclusively so. Appropriate policies can avert a growth collapse in
resource-abundant countries as a handful of countries that includes Malaysia shows.
The competitive industrialization model sustains a relatively open trade policy from a
low level of per capita income that promotes labour-intensive manufactured exports
that quickly absorb surplus rural labour. This sets in train a virtuous circle of equitable
income distribution, the rapid accumulation of human and social capital, an accelerated
passage through the demographic cycle and the speedy emergence of a dependency/
worker ratio that is highly favourable to saving and investment. Rates of capital
investment quickly rise above 25 per cent of GDP without significant loss in invest-
ment efficiency and the economy diversifies competitively so that growth is rapid and
egalitarian as well as being environmentally and socially sustainable.
vi Foreword
The models are not deterministic, however, because policy counts and the basic
models can be extended to account for a range of outcomes that reflect fundamental
differences in the type of political state and the specific characteristics of the natural
resource endowment. The research findings have strong implications for policy reform
in the developing market and transition economies alike.
UNU/WIDER gratefully acknowledges the financial contribution to the project
by the government of Sweden (Swedish International Development Cooperation
Agency—Sida).
Giovanni Andrea Cornia
Director, UNU/WIDER
Acknowledgements
The editor gratefully acknowledges the stimulating, efficient and friendly working
environment furnished by UNU/WIDER. Helpful comments were received from
Moshe Syrquin and two anonymous reviewers of the manuscript, but they bear no
responsibility for any shortcomings. The UNU/WIDER support staff provide an
outstanding example of 'enabling social capital'. Special thanks are due to Anne
Ruohonen, the exceptionally able and eternally cheerful secretary to the project.
R. M. Auty
Lancaster, November 2000
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Contents
List of Tables xi
List of Figures xiv
List of Contributors xv
Part I. Introduction
1. Introduction and Overview 3
Richard M. Auty
Part II. Critical Parameters in Resource-Based Development Models
2. Natural Resources, Capital Accumulation, Structural Change,
and Welfare 19
Richard M. Auty and Sampsa Kiiski
3. The Sustainability of Extractive Economies 36
Kirk Hamilton
4. Natural Resources, Human Capital, and Growth 57
Nancy Birdsall, Thomas Pinckney and Richard Sabot
5. The Social Foundations of Poor Economic Growth in
Resource-Rich Countries 76
Michael Woolcock, Lant Pritchett and Jonathan Isham
Part III. Long-Term Perspective on, and Models of,
Resource-Based Growth
6. Natural Resources and Economic Development:
The 1870-1914 Experience 95
Ronald Findlay and Mats Lundahl
1. Short-Run Models of Contrasting Natural Resource Endowments 113
S. Mansoob Murshed
8. Political Economy of Resource-Abundant States 126
Richard M. Auty and Alan H. Gelb