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

357 Pages·2001·18.59 MB·English
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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 This book has been printed digitally and produced in a standard specification in order to ensure its continuing availability OXFORD UNIVERSITY PRESS Great Clarendon Street, Oxford OX 6DP 2 Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Sao Paulo Shanghai Singapore Taipei Tokyo Toronto Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York © The United Nations University 2001 World Institute for Development Economics Research of the United Nations University (UNU/WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland The moral rights of the author have been asserted Database right Oxford University Press (maker) Reprinted 2002 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquirer ISBN 0-19-924688-2 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 This page intentionally left blank 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

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Since the 1960s the economies of the resource-poor nations have grown much faster than those of the resource-abundant nations. This book explains the disappointing performance of resource-abundant nations by extending the growth accounting framework to include natural and social capital.
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