Is are found among the worst performers both

Is
it good for a country to be rich in natural resources? Apparently, the answer
to this question would evidently seem to be “yes”. How could it
ever be negative to have something in addition to labor and produced capital?
How could it be negative to have something valuable “for free”? But Mehlum et
al. argues that latest findings in development economics show how natural
resource abundant economics grow slower than economies without ample resources.
While the author Torvik in his research raises the question; whether low growth
leads to high measure of resource abundant or resource abundant leads to low growth.
Moreover, far from making the people in country richer, oil and other valuable
primary resources make the people poorer, increase the likelihood of war and
decrease the likelihood of democracy creating unexpected
obstacles to development such as corruption and conflicts.

Torvik
argues why are so many countries poor even though they are rich in natural resources?
Mehlum argues if we consider low growth as cause then resource abundance does
not affect development.  When one, on top of this, adds that some of the
world’s fastest growing economies over the past decades such as Hong Kong, South
Korea and Singapore have no natural wealth, the picture that emerges is that
resources seem to be negative for development. But if we see resource abundance
as cause Take Congo for example. It is the world’s largest producer of cobalt,
industrial diamonds, and gemstone diamonds and has around 2/3 of the
world’s deposits of Colton, copper and tin. At the same time, it has the
world’s worst growth rate and the 8th lowest GDP per capita over last 40
years. Same is the situation with Sierra Leone and Liberia. They too possess
immense natural wealth, yet they are found among the worst performers both in
terms of economic growth and GDP per capita.

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Mehlum, Moene and Torvik
develop a theoretical model to this effect and also find empirical support for
the idea. In resource-rich countries with bad organizations incentives become
geared towards “grabbing resource rents” while in countries where institutions
render such activities difficult resources contribute positively to growth.
Barbier (2002) argues that it is generally accepted by most economies that
economic development around the world is leading to the permanent depletion of
natural capital, there is prevalent disagreement as to whether this necessarily
implies that such development is fundamentally unsustainable. Exploitation of
natural resources and mass industrialization in some of the countries has
already led to climate change and unsustainable ways of development somehow
author does not point it out as one of the main correlated factors in economic
development of countries since 1980s.

Instead,
the authors argue that political and legal institutions are essential in
defining nations between the winners and the losers in the economic race. For
absolute understanding of the eventual negative growth effect of the natural
resources, geography, types of natural resources, access to trade, and other
characteristics are also crucial.

 

CRITIQUE

There?does?seem?to?be?considerable?evidence?that?confirms?this?hypothesis.?For?instance,?in?OPEC?(the?Organization?of?Petroleum?Exporting?Countries)?member?states,?the?gross?national?product?(GNP)?actually?decreased?by?an?average?of?1.3%?between?1965?and1998,?while?the?rest?of?the?developing?world?experienced?growth?averaging?2.2%.?Similarly,?a?World?Bank?study?found?that?between?1971?and?1983??a?period?of?major?economic?growth?in?the?world
oil exporting countries did not perform well as their resource poor
counterparts.

 When the
examples South Korea, Hong Kong and Singapore is given with poor natural
resources but developed. At the same time, there are numerous countries that
provide counterexamples to this idea. Being the second largest exporter of natural gas and the fifth largest of oil, Norway is one of the richest world economies.
Botswana produces 29% of world’s gemstone diamonds and has been one of the
fastest growing countries over last 40 years. Australia, Chile, Malaysia are
other models of countries that have accomplished well, not just despite of
their resource wealth, but, to a large degree, due to it.

Resource abundant countries have less chance of
high growth due to the nature of their activity. Successful countries are those
embracing competition and change. Being supportive of the latest technologies, innovations
and products allow countries to adapt and improve over time.  In addition resource abundant countries cannot
adopt with shocks and trends well and they are vulnerable in their foreign
affairs. As a result civil conflicts and violent competitions increase.
Institutions lose their efficiency and generate many new recipes for corruption
and political elites block the technological and institutional development. So the
main culprit is the absence of viable political, economic, and social
institutions, such as secure property rights and an effective bureaucracy
rather than the natural resources. Oil and minerals have a stronger
negative growth effect when institutions are corrupt and stronger positive growth
effect when institutions are good. Abundant natural resources can also provoke
conflict in certain conditions. Sometimes?this?conflict?becomes?civil?war.?Sierra?Leone,?for?example,?competition?to?control?the?diamond?mines?(upon?which?much?of?the?country’s wealth is based) was part, but not all of the cause
of civil war during 1990’s.

Rate of saving in resource abundant countries
are very low compare to countries with other types of activity. Overspending in
some of these countries has resulted in bad economic development. Ragnar argues
that political systems Presidentialism vs. Parliamentarism are also important
but they are still concepts rather than facts and realities due to lack of
literature. Politically, nations must be inclusive and also open to competition
and change. Individuals must know they can participate in both the political
and economic systems and go as far as their abilities and interests will take
them. Knowing this and knowing they will be rewarded for their performance will
motivate people to develop their skills and aptitudes and in the process propel
the economy forward. On the other hand protection of property rights, little
corruption, functioning institutions, and lastly economic pay off make huge change
in development.

 

CONCLUSION

 “Natural resources have a tendency to impede
good institutional development”, there are possibilities. Some countries have
succeeded in using their resource wealth to develop and arguably to strengthen
their institutions. Even if it is often noted that Botswana had relatively
good institutions already at the time of independence, it was still a poor
country with no democratic history facing the challenge of developing a country
more or less from scratch. And at the time of independence they also discovered
and started mining diamonds that have since been an important source both of
growth and government revenue. This development has to a large part been due to
good, prudent policy.

There is nothing inevitable about the adverse effects of
natural resources but resource-rich developing countries must face the
challenges that come with having such wealth and use it wisely. A first step is
surely to understand the potential problems and to be explicit and transparent
about how one intends to deal with them.

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