Resource Abundance and Economic Development

By R. M. Auty | Go to book overview

case of resource-poor countries into competitive manufacturing that accelerates the accumulation of produced, human and social capital whose efficient deployment sustains rapid and egalitarian economic growth. However, this sequence requires a political state that has sufficient autonomy to sustain a coherent economic policy and the objective of raising social welfare. Although these features are strongly associated with extreme resource deficiency, the relationship between the natural resource endowment and the political state is not wholly deterministic. Nevertheless, the government of a resource-poor country is more likely to align its interests with the majority and to redistribute assets while still maintaining efficiency incentives. Such a state resists pressures to close the economy, which adheres to its emerging comparative advantage.

Although resource-abundant countries may pursue competitive industrialization where they engender a developmental political state, usually a consensual democracy, their progress will initially be slower due to their longer reliance on primary exports and their later and more capital-intensive industrialization, which challenges governance. More often, however, the natural resource rents feed conflicts so that the resource-abundant country has a factional or predatory government that relaxes market discipline in capturing and redistributing the rents. The economy is thereby deflected from its comparative advantage and cumulates economic distortions that retard diversification and/or cause the economy to regress into a staple trap of dependence on a weakening primary sector.

The governments of predatory and factional oligarchic states prefer non-transparent methods for deploying the rents in order to maximize the scope for political manoeuvring. The favoured channels for deploying rents are trade protection, job creation and over-extended public expenditure. Such policies cut economic growth by reducing investment efficiency. It is ironic that the growth collapses of the late-1970s and early-1980s resulted from the backfiring of the resource-abundant countries' efforts to reduce their commodity dependence. Domestic policies to promote infant industry (which resource abundance could sustain for longer than resource-poor countries) weakened their economies through the 1960s. Thereafter, international efforts to reverse the long-run decline in real commodity prices by establishing producer agreements triggered trade shocks in the 1970s that damaged their weakened economies.

The next section of this book, Part IV , draws upon case studies to explore in depth the five resource-abundant development trajectories, starting with the competitive industrialization of Malaysia in Chapter 9 (summarized in column 2 of Table 8.6). Chapters 10 examine growth collapses under different natural resource endowments.


Andrain, C. F. (1988), Political Change in the Third World, Boston MA: Unwin Hyman.

Auty, R. M. (1994), Economic Development and Industrial Policy: Korea, Brazil, Mexico, India and China, London: Mansell.

Auty, R. M. (1995), 'Industrial policy capture in Taiwan and South Korea', Development Policy Review, 195-217.


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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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