Resource Abundance and Economic Development

By R. M. Auty | Go to book overview

Hamilton and Clemens (1999) and Atkinson et al. (1997) have shown this to be true over decades as well.

The evidence suggests that, while extractive economies are potentially sustainable if resource rents are invested in other productive assets (including human capital), many of these economies have not chosen this path. The results presented here show distinctive patterns of genuine savings across country income and natural resource endowment groups. However, even robust genuine savings do not necessarily lead to a smooth development path if the quality of investment is low, as the financial crisis in Southeast Asia attests.

The genuine savings analysis raises an important set of policy questions that transcend the traditional concern with the macro and microeconomic determinants of savings effort. The questions of rent capture, public investments of resource revenues, resource tenure policies, and the social costs of pollution emissions are equally germane in determining the overall level of saving, although it is clear that monetary and fiscal policy remain the big levers.

Finally, human capital plays an increasingly dominant role as development proceeds, as Table 1.2 demonstrates. The next chapter shows how the rate of accumulation of human capital is affected by the natural resource endowment.


Appendix 3.1 Deriving Net Income and Genuine Saving

What follows is an outline of a general result with regard to savings and sustainability. We assume a simple economy in which a composite good can be consumed, invested, or used to abate pollution. Welfare U for the representative individual in this economy is a function of consumption and some number of stocks of living and nonliving natural resources and pollutants, with the stocks of natural resources (e.g., forests and other green spaces) generally adding to welfare, and the stocks of pollutants decreasing it. The measure of wealth W for this society is defined to be the present value of welfare on the optimal path over an infinite time horizon,

where ρ is the pure rate of time preference (assumed to be constant).

Production in this simple economy is defined by an aggregate production function that combines produced assets and natural resources (labour and population are assumed to be constant, and so are factored out of the model) to yield the composite good. Production leads to pollution emissions, which may be abated by some input of the composite good; pollution emissions accumulate in stocks that dissipate as a result of natural processes.

Genuine saving G for this economy is defined to be the sum of the net investment in produced assets and the physical changes in the various stocks of natural resources and pollutants, valued at the shadow prices supporting the optimal path—scarcity rents in the case of natural resources, marginal damages in the case of pollutants. For this simple model it follows

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Resource Abundance and Economic Development
Table of contents

Table of contents

  • Unu World Institute for Development Economics Research (Unu/Wider) ii
  • Resource Abundance and Economic Development iii
  • Foreword v
  • Acknowledgements vii
  • Contents ix
  • List of Tables xi
  • List of Figures xiv
  • List of Contributors xv
  • Part I Introduction 2
  • 1: Introduction and Overview 3
  • References 15
  • Part II Critical Parameters in Resource-Based Development Models 18
  • 3: The Sustainability of Extractive Economies 36
  • Appendix 3.1 Deriving Net Income and Genuine Saving 46
  • References 55
  • References 73
  • Part III Long-Term Perspective On, and Models Of, Resource-Based Growth 94
  • References 109
  • 7: Short-Run Models of Contrasting Natural Resource Endowments 113
  • References 124
  • References 142
  • Part IV Development Trajectories of Resource-Abundant Countries 145
  • 9: Competitive Industrialization with Natural Resource Abundance 147
  • References 163
  • 10: A Growth Collapse with Diffuse Resources 165
  • References 177
  • References 191
  • 12: A Growth Collapse with High Rent Point Resources 193
  • References 206
  • 13: Large Resource-Abundant Countries Squander Their Size Advantage 208
  • References 220
  • Part V Lessons for Policy Reform 223
  • References 237
  • 15: Growth, Capital Accumulation, and Economic Reform in South Africa 239
  • Appendix 15.1 257
  • References 258
  • 16: Reforming Resource-Abundant Transition Economies 260
  • References 275
  • References 294
  • 18: A Nordic Perspective on Natural Resource Abundance 296
  • Part VI Conclusions 314
  • 19: Conclusions 315
  • References 327
  • Index 329
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