Sunday, May 11, 2008

Natural Resources are Good!

Source: "ECONOMICS: Linking Natural Resources to Slow Growth and More Conflict," by C. N. Brunnschweiler and E. H. Bulte, Science, May 2, 1008.

This article challenges the frequently stated position 'that resource-rich economies suffer from weak leadership, rent seeking, and failing institutions." It is doubly interesting from the point of view of this blog, not only raising an important point about economic and social development, but challenging past analyses on the basis that they oftern use poor indicators. The authors use a World Bank indicator that measures resource availability by the present value of all primary product exports over a 25 year period. They compare economic growth over the period 1970 to 2000 with this indicator, finding a modest positive relationship between the resource endowment and economic growth. (I have noted before that resources are not merely things that exist, but things that exist that the society knows how to use.)

I thought it interesting that the authors suggest that poorly governed and poorly run countries appear to exploit primary production because they are unable to exploit manufacturing and service industries for growth.

The final conclusion is not surprising to any but economists. It is better to have good institutions and good policies, and if a country enjoys these advantages, it is also good to have natural resources to exploit.

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