Resource Abundance and Economic Development

By R. M. Auty | Go to book overview
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3 The Sustainability of Extractive Economies

KIRK HAMILTON


3.1 INTRODUCTION

This study is broadly concerned with the nature of the development path in resource-abundant economies, and in particular, the risk that these economies may fall into a staple trap. This chapter draws upon recent progress in environmental and natural resource accounting to pose the question: do these resource-abundant economies actually consume wealth along the development path? The answer to this question has clear implications on whether their development can be sustained.

The publication of the Brundtland Commission report in 1987 introduced a critical new dimension to our conception of economic development by raising the issue of the sustainability of development. While definitions of sustainable development abound (Pezzey 1989 is a good summary), economists have settled on a simple formulation that can capture a very rich set of phenomena: a development path is sustainable if total welfare does not decline along the path. As long as the welfare function is sufficiently expansive in what it measures (consumption, environmental quality, social equity, and other factors contributing to the quality of life), this definition permits a rigorous characterization of sustainable development.

Pearce et al. (1989) take the sustainability argument one step further by positing the existence of critical natural capital (the ozone layer, for instance) for which no substitute exists. This conception of strong sustainability therefore requires the preservation of critical natural capital in order for development to be sustainable. Weak sustainability assumes that there are substitutes for all assets.

As should be obvious, opting for sustainability is an ethical decision. The Utilitarian maximand assumed in most models of economic growth, the present value of welfare along the optimal path, can be shown to lead to unsustainable outcomes under simple assumptions (fixed technology and pure rate of time preference combined with an exhaustible resource that is essential for production (see Dasgupta and Heal 1979)). Choosing sustainability implies a concern with the welfare of future generations that is not captured by the Utilitarian maximand. The fact that most countries and international institutions have adopted sustainable development as an explicit goal suggests that a powerful impulse is at work.

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