E Role of Natural Resources in Economic Development PDF

University of Adelaide Press
Chapter Title: 2002 – The role of natural resources in economic development

Chapter Author(s): Edward B. Barbier
Book Title: Australia's Economy in its International Context

Book Subtitle: The Joseph Fisher Lectures, Volume 2: 1956-2012
Book Editor(s): Kym Anderson
Published by: University of Adelaide Press. (2012)
Stable URL: https://www.jstor.org/stable/10.20851/j.ctt1t304mv.31
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected].
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms
This book is licensed under a Creative Commons Attribution 3.0 International. To view a
copy of this license, visit http://creativecommons.org/licenses/by/3.0/.
University of Adelaide Press is collaborating with JSTOR to digitize, preserve and extend
access to Australia's Economy in its International Context
This content downloaded from 103.231.241.233 on Tue, 23 Oct 2018 16:14:15 UTC
All use subject to https://about.jstor.org/terms
49
The role of natural resources in
economic development
Edward B. Barbier1
Compared to some other academic disciplines, economics is not known for being
particularly tolerant of revisions to its “mainstream” core concepts or paradigms.
Yet, today a major change is occurring in the economic view of the world, and it
is likely to have profound implications for many years to come.
Surprisingly, however, contemporary economists appear to be largely

unaware that their “worldview” is undergoing such an important change. Perhaps
one reason is that, unlike previous major innovations in economic thinking, there
is no one person responsible or associated with the new doctrine, such as a Karl
Marx with “Marxism”, a John Maynard Keynes with “Keynesian economics”, a
John Nash with “Nash equilibrium”, or a Milton Friedman with “monetarism”.
Perhaps another reason is that the change in economic thinking has been fairly
gradual and unheralded. Just as it is hard to pinpoint a single individual, or
even a group of like-minded individuals, as being responsible for this changing
worldview, it is difficult to find a particular body of work, journal articles or
books that has instigated this change. Instead, in this instance economic thinking
is evolving more as the result of outside influences and pressures, such as the need
for economics to be “relevant” to contemporary policy issues and problems.
So what exactly is this gradual, largely unnoticed, yet possibly profound

change in the economic worldview? Simply put, the age-old concept of the
“economic system” has been irrevocably changed. No longer do we consider the
1 Forty-ninth Joseph Fisher Lecture, 30 September 2002. Since published in Australian Economic Papers
42(2): 253-72, June 2003.
487
49 The role of natural resources in economic development
economic process of producing goods and services and generating human welfare
to be solely dependent on the accumulation of physical and human capital. That
is, an increasing number of economists now accept that there is a third form
of “capital” or “economic asset” that is also crucial to the functioning of the
economic system of production, consumption and overall welfare. This distinct
category consists of the natural and environmental resource endowment available
to an economy, which is often referred to generally as natural capital.
The rest of this lecture is devoted to elaborating further on the “new

thinking” concerning the relationship between natural resources and economic
development, and in particular, on the key issues and debates that are emerging
from this thinking. As a useful starting point, I will characterize briefly how
physical, human and natural capital are now thought to contribute to the
functioning of an economic system. What becomes immediately clear is that the
services provided by natural capital are unique, and in the case of the ecological
services and life-support functions of the environment, are not well understood.
As a result, there has also been considerable debate over the role of natural capital
in “sustainable” economic development. That is, does the environment have an
“essential” role in sustaining human welfare, and if so, are special “compensation
rules” required to ensure that future generations are not made worse off by natural
capital depletion today? A further debate has emerged over whether environmental
degradation in an economy may initially increase, but eventually declines, as per
capita income increases. Empirical verification of this environmental Kuznets curve
hypothesis has occasionally been cited as evidence that economies will be able
to overcome certain environmental problems through further economic growth
and development. Finally, recent economic theories and empirical evidence have
questioned whether poorer economies that are endowed with abundant natural
resources develop more rapidly than economies that are relatively resource poor.
It is often argued that resource-abundant economies are not reinvesting the
rents generated from natural resource exploitation into productive assets, or that
commodity price booms actually divert economic resources from more productive
and innovative sectors.
In sum, our understanding of the role of natural resources in economic

development has advanced considerably in recent years, although there is still
much more to learn. In the rest of this lecture, I will try to convince you that
488
Edward B Barbier
what we do know about this role is sufficient to recognize that efficient and
sustainable management of natural resources is a critical policy objective for the
economic process. We can no longer exclude natural capital from any meaningful
discussion of the factors determining economic development. Our concept of the
“economic system” has indeed changed irrevocably.
Natural capital and the economic system

Figure 49.1 depicts the basic relationship between physical, human and natural
capital and the economic system.
Figure 49.1: Human, physical and natural capital and the economic system
Economic process
Human
welfare
Production
Built Aesthetics, Human

environment life support knowledge
KP KN KH

Source: Adapted from Pearce and Barbier (2000).
489
Person-made, or physical, capital (KP), natural capital (KN), and human

capital (KH) all contribute to human welfare through supporting the production
of goods and services in the economic process. For example, KP, consists of
machinery, equipment, factory buildings, tools and other investment goods that
are used in production; KN is used for material and energy inputs into production,
acts as a “sink” for waste emissions from the economic process, and provides a
variety of “ecological services” to sustain production, such as nutrient recycling,
watershed protection and catchment functions, and climate regulation; and KH
includes the human skills necessary for advanced production processes and for
research and development activities that lead to technical innovation. However,
all three forms of capital also contribute directly to human welfare independently
of their contributions through the economic process. For instance, included in
physical capital, KP, is fine architecture and other physical components of cultural
heritage; KN includes aesthetically pleasing natural landscapes, and provides a
variety of ecological services that are essential for supporting life; and increases
in KH also contribute more generally to increases in the overall stock of human
knowledge.
One way of illustrating how unique are the various “goods and services”
produced by natural capital is to examine the various economic values that arise
through the functioning of a natural ecosystem. For example, most natural
ecosystems generate multiple benefits, or values. Table 49.I illustrates this with
the example of an aquatic ecosystem. As shown in the table, the concept of total
economic value (TEV) is one framework that economists have developed for
categorizing the various multiple benefits arising from natural systems such as
an aquatic ecosystem. Total economic value distinguishes between use values and
non-use values, the latter referring to those current or future (potential) values
associated with an environmental resource which rely merely on its continued
existence and are unrelated to use. Typically, use values involve some human
‘interaction’ with the resource whereas non-use values do not.
490
Edward B Barbier
Table 49.1: Classification of total economic values for aquatic ecosystems

Use values Non-se values
Direct use values Indirect use values Existence values
Bequest values
Fish Nutrient retention/cycling Biodiversity
Aquaculture Flood control Culture, heritage
Transport Storm protection
Wild resources External ecosystem support
Potable water Shoreline/river bank

stabilization
Recreation
Genetic material
Scientific/educational
Source: Adapted from Barbier (1994).
Use values are also grouped according to whether they are direct or indirect.
The former refers to both consumptive and non-consumptive uses that involve
some form of direct physical interaction with the resources and services of the
system: harvesting of fish and wild resources, transport and use for recreation
and tourism. It is also increasingly being recognized that the livelihoods of
populations in areas neighboring aquatic ecosystems may be affected by certain
key regulatory ecological functions (e.g. storm/flood protection, water purification,
habitat functions, etc.). The values derived from these functions are considered
to be “indirect”, as they occur through the support and protection of economic
activities that have directly measurable values (e.g. property and land values,
drinking supplies, commercial fishing, etc.). Many unique natural environments
are considered to have substantial existence values, in that many individuals do
not make use of these environments but nevertheless wish to see them preserved
“in their own right”. Other important non-use values are bequest and cultural/
heritage values. The Everglades in Florida or the Great Barrier Reef off the coast
of Australia are unique ecosystems that we may wish future generations to enjoy
in a fairly “intact” state and that are also considered important components of
national and cultural heritage.
491
Natural capital and sustainable development

The importance of the total capital stock concept to sustainability is illustrated
in Figure 49.2, which summarizes broadly the economic view of sustainable
development. Most economic interpretations of sustainability take as their starting
point the consensus reached by the World Commission on Environment and
Development (the WCED, or Brundtland Commission). The WCED defined
sustainable development as “development that meets the needs of the present
without compromising the ability of future generations to meet their own needs”
(WCED 1987).
Economists are generally comfortable with this broad interpretation

of sustainability, as it is easily translatable into economic terms: an increase in
well-being today should not have as its consequences a reduction in well-being
tomorrow.2 That is, future generations should be entitled to at least the same
level of economic opportunities – and thus at least the same level of economic
welfare – as currently available to present generations. Consequently, economic
development today must ensure that future generations are left no worse off than
present generations. Or, as some economists have succinctly put it, per capita
welfare should not be declining over time (Pezzey 1989).
As noted in Figure 49.2, it is the total stock of capital employed by the

economic system, including natural capital, which determines the full range of
economic opportunities, and thus well-being, available to both present and future
generations. Society must decide how best to “use” its total capital stock today to
increase current economic activities and welfare, and how much it needs to “save”
or even “accumulate” for tomorrow, and ultimately, for the well-being of future
generations.
2 Although as Bishop (1993) has pointed out, the objective of “sustainability” is different from that of
the standard economic objective of “efficiency.” That is, there are potentially an infinite number of
development paths for an economy, only some of which are sustainable. Efficiency therefore does not
guarantee sustainability, as some efficient paths are not sustainable. At the same time, there is no reason
why an economy could not be both efficient and sustainable.
492
Edward B Barbier
Figure 49.2: Sustainable economic development
Sustainable
development
Development that meets the needs of the present without

compromising the ability of future generations to meet their needs
Welfare does not decline over time
Requires managing and enhancing a portfolio of economic assets
Natural Physical Human

capital capital capital
“Weak” sustainability
Substitutes for KN
All KN is non-essential
“Strong” sustainability
All KN is essential Keep essential KN “intact” because of:
• Imperfect substitution
• Irreversible losses
• Uncertainty over values
Source: Adapted from Pearce and Barbier (2000).
However, it is not simply the aggregate stock of capital in the economy

that may matter but also its composition, in particular whether present
generations are “using up” one form of capital to meet the needs of today.
For example, much of the recent interest in sustainable development has risen
out of concern that current economic development may be leading to rapid
accumulation of physical and human capital, but at the expense of excessive
depletion and degradation of natural capital. The major concern has been that,
493
by depleting the world’s stock of natural wealth irreversibly, the development

path chosen today will have detrimental implications for the well-being of
future generations. In other words, according to this view, current economic
development is essentially unsustainable.
While it is generally accepted by most economists that economic

development around the world is leading to the irreversible depletion of natural
capital, there is widespread disagreement as to whether this necessarily implies that
such development is inherently unsustainable. From an economic standpoint,
the critical issue of debate is not whether natural capital is being irreversibly
depleted, but whether we can compensate future generations for the current loss
of natural capital, and if that is possible, how much is required to compensate
future generations for this loss (Mäler 1995).
However, economists concerned with this problem appear to be divided into

two camps over the special role of natural capital in sustainable development. The
main disagreement between these two perspectives is whether natural capital has
a unique or “essential” role in sustaining human welfare, and thus whether special
“compensation rules” are required to ensure that future generations are not made
worse off by natural capital depletion today (see Figure 49.2). These two contrasting
views are now generally referred to as weak sustainability versus strong sustainability.3
According to the weak sustainability view, there is essentially no inherent

difference between natural and other forms of capital, and hence the same “optimal
depletion” rules ought to apply to both. As long as the natural capital that is being
depleted is replaced with even more valuable physical and human capital, then
the value of the aggregate stock – comprising human, physical and the remaining
natural capital – is increasing over time.4 Maintaining and enhancing the total
stock of all capital alone is sufficient to attain sustainable development.
3 For further discussion of this distinction between weak and strong sustainability see Howarth and
Norgaard (1995), Pearce, Markandya and Barbier (1989), Pearce and Barbier (2000), Toman, Pezzey
and Krautkraemer (1995) and Turner (1993).
4 Note, however, that rapid population growth may imply that the value of the per capita aggregate capital
stock is declining even if the total value stays the same. Moreover, even if the per capita value of the
asset base were maintained, it may not imply non-declining welfare of the majority of people. These
considerations also hold for the ‘strong sustainability’ arguments discussed below.
494
Edward B Barbier
In contrast, proponents of the strong sustainability view argue that physical or

human capital cannot substitute for all the environmental resources comprising the
natural capital stock, or all of the ecological services performed by nature. Essentially,
this view questions whether, on the one hand, human and physical capital, and on
the other, natural capital, effectively comprises a single “homogeneous” total capital
stock. Uncertainty over many environmental values, in particular the value that
future generations may place on increasingly scarce natural resources and ecological
services, further limits our ability to determine whether we can adequately compensate
future generations for irreversible losses in essential natural capital today. Thus the
strong sustainability view suggests that environmental resources and ecological
services that are essential for human welfare and cannot be easily substituted by
human and physical capital should be protected and not depleted. Maintaining or
increasing the value of the total capital stock over time in turn requires keeping the
non-substitutable and essential components of natural capital constant over time.
The two sides in the debate between weak and strong sustainability are
not easy to reconcile. Recent extensions to the economic theory of sustainable
development have not so much resolved this debate as sharpened its focus. It may
take several generations before we know for sure which view of the role of natural
capital in sustainable development is the correct one. Unfortunately, by then it
may be too late to correct many of the costly mistakes of the past.
Growth, environment and environmental Kuznets curves

A new area of enquiry has emerged in environmental economics that also has
important implications for sustainable development. This recent literature is
concerned with the analysis of environmental Kuznets curves (EKC), that is, the
hypothesis that there exists an “inverted U” shaped relationship between a variety
of indicators of environmental pollution or resource depletion and the level of per
495
capita income.5 The implication of this hypothesis is that, as per capita income
increases, environmental degradation rises initially but then eventually declines.
Figure 49.3 shows a typical EKC estimated for sulfur dioxide (SO2). Although
estimations of such EKC relationships began in the early 1990s, interest in these
studies is likely to continue for some time. There are several reasons for this.
Figure 49.3: An environmental Kuznets curve for sulfur dioxide
The above curve is the environmental Kuznets curve for sulfur dioxide (SO2) estimated across the world’s
rich and poor countries. The “peak” or “turning point” level of per capita income where SO2 levels start to
fall is around $5,000.
Source: Adapted from Panayotou (1995).
5 The concept of an environmental Kuznets curve (EKC) relationship draws its inspiration from the
income distribution theory developed by Kuznets (1955), who hypothesized that there is an ‘inverted
U’ relationship between an indicator of income inequality and the level of income. However, the exact
origins of the EKC hypothesis are somewhat ambiguous, and appear to be the product of numerous
studies conducted simultaneously in the early 1990s. Most sources point to the analysis by Grossman
and Kreuger (1995) of air quality measures in a cross-section of countries for different years, which
was part of a wider investigation into whether the claims that the economic growth accompanying the
North American Free Trade Agreement might foster greater environmental degradation. Similarly, the
study by Shafik (1994) was originally a background paper for the World Bank’s enquiry into growth and
environment relationships for the World Development 1992 (World Bank 1992). Finally, Panayotou
(1995) offers perhaps the earliest and most detailed explanation of a possible “Kuznets type U-shape
relationship between the rate of environmental degradation and the level of economic development” in
analysis conducted for the World Employment Programme of the International Labour Office in 1992.
496
Edward B Barbier
First, the EKC is a falsifiable hypothesis that can and will continue to be
tested through empirical investigation. Thus an increasing number of studies are
attempting to determine whether the EKC hypothesis holds for various indicators
of environmental degradation, both over time and across countries, regions,
states, districts and even cities.
Second, the EKC hypothesis poses an important intellectual challenge.

Explanations as to why environmental degradation should first increase then
decline with income have focused on a number of underlying causes, including:
• the effects of structural economic change on the use of the environment for
resource inputs and to assimilate waste;
• the effects of increasing income on the demand for environmental quality;
and
• the types of environmental degradation and ecological processes.
It is not yet clear which of these factors, if any, explain why we might
observe an EKC relationship. For example, many of the original explanations
of the EKC hypothesis focused on changes in the composition of goods and
services due to structural shifts in the economy, the efficiency of resource use,
the composition of inputs, and technological innovation. However, increasingly
it has been recognized that the effect of such changes on environment-income
linkages are not “exogenous” processes – determined by factors outside the
economy – but are influenced by policy choices (Andreoni and Levinson 2001;
Lopez 1994; Panayotou 1995 and 1997; Stern et al. 1996; World Bank 1992).
Similarly, previous conjecture that environmental quality is simply a “luxury
good”, and thus the demand for improved environmental quality increases more
than proportionately with income, is proving difficult to substantiate (Lieb 2002;
McConnell 1997). Finally, it is possible that EKC studies are providing misleading
information on environment-income linkages (Stern et al. 1996). As discussed
earlier in this lecture, there is much that we do not know about key ecological
processes and functions, as well as the valuable services that they provide. Even
if we observe EKCs for certain indicators of pollution and resource depletion, it
does not necessarily follow that the overall health and functioning of ecosystems
will also improve as income increases.
497
Third, and perhaps most importantly, the EKC hypothesis has revived interest
in the long-standing debate over the environmental implications of economic
growth (Ansuategi et al.1998). One important interpretation of such estimated
curves is that economies will eventually “grow out of ” many environmental
problems (Beckerman 1992). Taken to its extreme, this argument suggests that
we do not have to regard the environment as anything special. As people get richer
they will increase their demand for the environment and improve it, initially with
public health legislation, then clean air, then conservation generally.
However, other commentators have been more cautious, noting that

conclusive evidence of an EKC relationship applies only to a few pollutants, thus
making it difficult to use this evidence to speculate more generally about growth-
environment linkages (Arrow et al. 1995). Still others have pointed out that, even
for those pollutants displaying EKC characteristics, aggregate global emissions are
projected to rise over time, demonstrating that the existence of an EKC does not
necessarily imply that, at the global level, any associated environmental damage
is likely to disappear with economic growth (Selden and Song 1994; Stern et al.
1996). Policy makers are following this renewed debate with interest. From their
perspective, the critical policy issue is whether economic growth should continue
to be the main priority, with protection of the environment as a secondary
consideration to be addressed mainly in the future, or whether explicit policies
to control environmental degradation at the local, national and global level are
required urgently today.
To date, the empirical evidence suggests that EKC relationships are more
likely to hold for certain types of environmental damage, e.g. pollutants with
more short-term and local impacts, versus those with more global, indirect and
long-term impacts such as carbon dioxide and other greenhouse gases (Arrow et
al. 1995; Barbier 1997; Cole et al. 1997; Selden and Song 1994). In terms of
types of “localized” environmental damage, the EKC hypothesis seems mainly
to be valid for air pollution, in particular sulfur dioxide (SO2) and to a lesser
extent solid particulate matter (SPM). The evidence for other localized forms
of environmental damage, such as water pollution, deforestation, urban waste
and toxic metals, is more mixed (Barbier 1997; Cole et al. 1997). Moreover,
environment-income relationships appear to vary across individual countries. For
example, a study for Malaysia found SPM to be increasing with income (Vincent
498
Edward B Barbier
1997), whereas a study for the United States indicated that SPM and other major
air pollutants decline with increasing levels of income (Carson et al. 1997).
However, even when an EKC relationship is estimated, often the turning

point on the curve, where environmental degradation starts to decline with per
capita income, proves to be very high relative to the current per capita GDP
levels of most countries of the world (Barbier 1997). For example, the turning
point for sulfur dioxide in Figure 49.3 is just under $5,000 per capita. In
another recent analysis, none of the estimated EKC turning points for various
environmental indicators are below the minimum income level of the sample of
countries analyzed, and the turning points for nitrates, carbon dioxide, energy
consumption and traffic volumes are well above the maximum income of the
countries in the data set (Cole et al. 1997). In the case of those EKC estimates
for tropical deforestation that are robust, the per capita income levels of most
developing countries are also well to the left of the estimated turning point peaks
(Cropper and Griffiths 1994; Barbier and Burgess 2001; Koop and Tole 1989).
Overall, such results suggest that most countries have not yet reached levels
of per capita income for which environmental improvement is likely to occur.
The implications are a worsening global problem of environmental degradation
as the world economy and populations expand, even for those environmental
indicators that display EKCs (Selden and Song 1994; Stern et al. 1996). This
can be seen clearly in Figure 49.4. This figure shows the future trend in global
sulfur dioxide emissions based on the estimated EKC for SO2 depicted in Figure
3 and employing aggregation of individual country projections of population
and economic growth over 1990 to 2025. The resulting projections show a rise in
global sulfur dioxide emissions throughout this period. For example, total global
emissions of SO2 rise from 383 million metric tons in 1990 to 1,181 million
metric tons in 2025, or from 73 to 142 kg per capita (Stern et al. 1996).6
6 Selden and Song (1994) conduct similar projections for the four air pollutants for which they
estimate an EKC relationship, SO2, SPM, nitrogen dioxides (NOx) and carbon monoxide
(CO). Their results show world emissions increasing for all four pollutants through 2025, and
for SPM and NOx, emissions rise through 2050.
499
Figure 49.4: Projected trends for global SO2 emissions
Source: Stern et al. (1996).
Where the EKC relationship does appear to hold, especially for certain
air pollutants with localized or short-term effects, there is evidence that the
eventual reduction in emissions associated with higher per capita income
levels may be attributable to the “abatement effect” that arises as countries
become richer (Andreoni and Levinson; Lopez 1994; Panayotou 1997). Also,
both the willingness and the ability of political jurisdictions to engage in and
enforce improved environmental regulations, to increase public spending on
environmental research and development, or even to engage in multilateral
agreements to reduce emissions may also increase with per capita income levels
(Carson et al. 1997; de Bruyn 1997; Komen et al. 1997).7 However, it is a great
leap of faith to conclude from these results that economic growth on its own
will foster environmental improvement automatically. As Panayotou (1997) has
concluded, “when all effects are considered, the relationship between growth and
7 On the other hand, corruption and bureaucratic inefficiency may also explain why EKCs
“break down” for certain countries. See López and Mitra (2000).
500
Edward B Barbier
the environment turns out to be much more complex with wide scope for active
policy intervention to bring about more desirable (and in the presence of market
failures) more efficient economic and environmental outcomes.”
This conclusion may be particularly relevant for low income and rapidly
industrializing developing countries, whose current per capita income levels are
well below the turning points of most estimated EKCs. In the absence of national
and multilateral policy interventions, environmental degradation will continue
in these countries as per capita income increases, at least over the medium term.
In this regard, the observation of Vincent (1997) from his analysis of Malaysia is
very apt: “The lack of evidence of EKCs in Malaysia does not prove that EKCs do
not exist anywhere. It does indicate, however, that policy makers in developing
countries should not assume that economic growth will automatically solve air
and water pollution problems.”
In sum, the implications of the EKC literature for sustainable development

are fairly straightforward. Regardless of whether one is an adherent of the weak
sustainability or strong sustainability view, estimated EKC relationships on
their own do not help us determine what actual policies are required in the
economy to manage its total capital stock, including its stock of natural capital.
Although recent EKC studies appear to have revived the wider “growth versus
the environment” debate, these studies offer very little support for the view that
economic growth alone is the solution to all environmental problems. Rather, it is
clear from the EKC literature that specific policies to protect the environment are
necessary to reduce environmental damages that are imposing real welfare losses.
As Arrow et al. (1995) have succinctly put it: “Economic growth is not a panacea
for environmental quality; indeed it is not even the main issue.”
Natural resource abundance and economic growth

So far, we have examined how management of environmental and natural
resources, i.e. the natural capital stock, of a country is important for achieving
sustainable economic development. We have also reviewed the recent findings of
the EKC literature to make the case that the causal relationship is from improved
environmental management to enhanced economic development and welfare,
and not the other way around.
501
It is therefore tempting to conclude that, if natural capital is so important

to sustainable development, then more of a good thing must be even better. That
is, economies that have a greater endowment of natural resources must surely have
a much better chance of attaining higher economic growth rates and prosperity
than relatively resource-poor economies. This must be particularly true with
respect to low and middle-income countries, whose economies are generally more
dependent on exploiting their natural capital stock in the transition to developing
industrial and service sectors and the “take off” into higher and more balanced
rates of long-run growth.
However, if per capita income is to be sustained or increased in these

economies, especially with population increases, then any depreciation of natural
resources must be offset by investment in other productive assets. This implies
managing natural resources so as to maximize resource rents and channeling those
rents into productive investments elsewhere in the economy. Although it would
seem that the windfall profits generated by resource price booms would be beneficial
to this process, this may not be the case for resource-abundant developing countries.
In fact, recent evidence suggests that resource-abundant countries, especially

developing economies, may not be benefiting economically from this apparent
comparative advantage. Many low-income and lower middle-income economies
that can be classified as highly resource dependent today also currently display low
or stagnant growth rates (Barbier 1999). Cross-country analysis has confirmed
that resource-abundant countries – i.e. countries with a high ratio of natural
resource exports to GDP – have tended to grow less rapidly than countries that
are relatively resource poor (Sachs and Warner 1997). Economies with a high
ratio of natural resource exports to GDP in 1971 also tended to have low growth
rates during the subsequent period 1971-89 (Sachs and Warner 1995).
Such evidence might be considered surprising, given the commonly held

view that abundant natural resources ought to be the basis for economic expansion
for those countries fortunate to have such a rich endowment. For example, the
origins of rapid industrial and economic expansion in the US over 1879-1940
were strongly linked to the exploitation of abundant non-reproducible natural
resources, particularly energy and mineral resources (Romer 1996; Wright 1990).
In particular, during 1880-1920, the intensity of US manufacturing exports in
502
Edward B Barbier
terms of non-reproducible resources grew both absolutely and relative to the

resource-intensity of imports. However, there is also evidence that were other
factors that made this historical situation in the US unique. For example, Wright
(1990) maintains that, over this era:
• the United States was not only the world’s largest mineral producing nation
but also one of the world’s largest countries and markets;
• high international transport costs and tariff barriers for manufactured goods
compared to highly efficient and low cost domestic transportation meant
that the United States was a vast free trade area for internal commerce and
industrial expansion that benefited from “economic distance” from the rest
of the world; and
• because of the quantities of resources that were available combined with the
large internal markets for goods, increasing investment in basic technologies
for extracting and processing natural resources was highly profitable.
As Wright (1990, pp. 665 and 661) suggests: “the abundance of mineral
resources, in other words, was itself an outgrowth of America’s technological
progress,” and in turn, “American producer and consumer goods were often
specifically designed for a resource-abundant environment”.
However, it is doubtful that the unique circumstances over 1879-1940

that allowed the United States to achieve “congruence” between intensive
resource use and basic processing and manufacturing technologies, and
thus attain rapid economic expansion, are applicable to resource-abundant
developing economies today. For one, after 1940, this unique “congruence” had
clearly ended for the United States, largely due to changes in the international
economy, even though the US still had abundant resources. As Wright (1990, p
665) points out: “the country has not become ‘resource poor’ relative to others,
but the unification of world commodity markets (through transportation cost
reductions and elimination of trade barriers) has largely cut the link between
domestic resources and domestic industries … To a degree, natural resources have
become commodities rather than part of the ‘factor endowment’ of individual
countries.” As some researchers have pointed out, the changed international
conditions during the post-war era may have also affected the role of primary-
product export promotion as the “engine of growth” for developing economies.
503
During this era, the main source of economic growth in developing countries
has not been primary-product based exports but labor-intensive manufactured
exports (Findlay 1996; Findlay and Wellisz 1993).8
Not only are the conditions for “congruence” between resource abundance,
technological progress and industrial expansion lacking in most developing
economies today, but it is also possible that increased economic dependence on
resource exploitation may be detrimental to innovation and growth. For example,
recent explanations of the limitations of resource-based development have focused
on the poor potential for such development in inducing the economy-wide
innovation necessary to sustain growth in a small open economy. Matsuyama
(1992) has shown that trade liberalization in a land-intensive economy could
actually slow economic growth by inducing the economy to shift resources
away from manufacturing (which produces learning-induced growth) towards
agriculture (which does not). Sachs and Warner (1995) also argue that the
relative structural importance of tradable manufacturing versus natural resource
sectors in an economy is critical to its growth performance, i.e. when a mineral
or oil-based economy experiences a resource price boom, the manufacturing
sector tends to shrink and the non-traded goods sector tends to expand. This
phenomenon is often referred to in the literature as the “Dutch disease” effect.9
8 From their case study analysis of five open developing economies, Findlay and Wellisz (1993)
conclude that over the post-war era it was economies with relatively no resources, such as Hong
Kong, Singapore and Malta, which were among the earliest and most successful exporters
of labor-intensive manufactures. In contrast, resource-rich Jamaica and the Philippines have
done relatively poorly, whereas Indonesia and Malaysia have done comparatively better by
balancing primary exports with rapid expansion of labor-intensive manufactures.
9 Originally, the “Dutch disease” phenomenon was associated with the macroeconomic
implications of an economy’s over-dependence on a single, traded natural resource sector
(e.g. oil), which emphasized the enclave character of the sector as the predominant source
of foreign exchange availability (Neary and van Wijnbergen 1986). As the consequence of
a resource price boom (e.g. oil price shock), expansion of the resource-based sector would
be accompanied by a change in the real exchange rate, and the rest of the economy would
decline relatively. The more recent treatments of the “Dutch disease” phenomenon, such as by
Matsuyama (1992) and Sachs and Warner (1995) discussed here, focus less on the economic
implications of a resource boom via real exchange rate movements but via internal economic
distortions caused by the shift of resources from a more innovative sector (e.g. manufacturing)
to a less innovative sector (e.g. agriculture, minerals). This latter representation of the “Dutch
disease” is more appropriate for characterizing a small open economy, in which real exchange
rate determination is not considered.
504
Edward B Barbier
Sachs and Warner (1999) have recently examined evidence over the period
1960-94 for eleven major Latin American economies to test the hypothesis
that any natural resource booms occurring in these countries may have had a
positive impact on their growth performance.10 First, the authors note that the
main structural feature of these economies is that they have remained by and
large exporters of primary commodities or manufactured products based on these
commodities. Second, they suggest that a significant resource boom occurred in
only four of the eleven countries (Bolivia, Ecuador, Mexico and Venezuela), and
mixed evidence of a boom in another three (Chile, Colombia and Peru). However,
Sachs and Warner conclude that in only one of these seven countries (Ecuador)
did a resource boom have a positive and lasting effect on GDP per capita. In two
countries (Chile and Colombia) there appears to be no effect of a resource boom
on economic development, and in the remaining four cases (Bolivia, Mexico,
Peru and Venezuela), the resource boom actually produced a negative impact
on GDP per capita. On balance, resource booms appear to frustrate economic
growth in Latin America, most likely through a Dutch disease effect.
If natural resource booms are not important catalysts for economic

development in poorer countries, then perhaps the process of resource exploitation
occurring in these economies is not as economically beneficial as it could be.
That is, the structural economic dependence of a small open low or lower middle
income economy on exploiting its natural resource endowment may not be
leading to sustained and high rates of economic growth. This may be occurring
because natural resource assets, including land, are not being managed so as to
maximize rents and/or whatever rents are being generated in the economy are not
being channeled into productive investments elsewhere in the economy.
Brander and Taylor (1997 and 1998) provide some theoretical support for
this perspective. They note that over-exploitation of many renewable natural
resources – particularly the conversion of forests to agricultural land – occurs in
developing countries if property rights over a resource stock are hard to define,
difficult to enforce or costly to administer. They demonstrate that opening up
trade for a resource-abundant economy with an open access renewable resource
10 The countries are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay,
Peru, Uruguay and Venezuela.
505
may actually reduce welfare in that economy. As the resource-abundant country

has a comparative advantage in producing the resource good, the increased demand
for this good resulting from trade openness leads to greater resource exploitation,
which under conditions of open access leads to declining welfare in the long run.
Brander and Taylor conclude that, as the problem lies with the “open access” nature
of exploitation in the resource-abundant economy, then the first-best policy would
be for the developing country to switch to more efficient resource management
policy through simply establishing property rights.11 However, as they acknowledge,
there are many policy and institutional distortions that currently work against
such solutions in developing countries. Consequently, Brander and Taylor (1997,
p. 550) argue in favor of “second best approaches”, such as the imposition of “a
modified ‘Hartwick’s rule’ (see Hartwick 1977) under which an exporting country
that experienced temporary gains from selling a resource good on world markets
might re-invest those proceeds in an alternative asset.”
Current policies in resource-abundant developing economies appear not to

be ensuring that any resource rents earned are re-invested efficiently into other
productive assets in the economy (Pearce and Barbier 2000). Such an outcome
may be reinforced by corruption, bureaucratic inefficiency and misguided policies
that benefit special interests that gain from short-term resource exploitation
(Ascher 1999; Barbier and Damania 2000; Deacon 1994). If this is the case,
then irrespective of what may happen to a country’s terms of trade or commodity
prices, any initial “economic boom” associated with land conversion or increased
resource exploitation is invariably short-lived as the extra rents generated are
eventually dissipated. Once the land expansion and increased exploitation of
new resource “reserves” comes to an end, or poorer quality land and resources
are brought into production, then some economic retrenchment is inevitable.
What we should therefore observe is that economic development in a resource-
dependent small open economy displays an inherently “boom and bust” pattern.
11 In a recent analysis of land expansion in Mexico, Barbier (2002) demonstrates that institutional
constraints, such as the ejido common-property land management regime, may have slowed
down the pace of land conversion and deforestation in pre-NAFTA Mexico. However,
increased trade liberalization under NAFTA combined with the widespread relaxing of the
land management rules of the ejido regime could accelerate land clearing in Mexico.
506
Edward B Barbier
Again, Brander and Taylor (1997) show that a small, open and resource-
abundant economy that produces both a resource and a manufacturing good
in the long run will have such a pattern of development. That is, the economy
will experience early gains from trade, followed by a period of declining utility.
With the specific case of Latin America in mind, in which raw materials are often
inputs into semi-processed or processed exports, López (1989) also develops
a two-good model of a resource-rich open economy in which the open access
renewable resource serves as an input into an “enclave” export processing sector.
López demonstrates that improvements in the terms of trade increases the rate of
open access resource extraction and causes real income to rise in the short-run,
but inevitably permanent income falls in the long run.
As mentioned above, the classic case of open access resource exploitation

in many developing countries is conversion of forest to agriculture (Barbier and
Burgess 2001). If agricultural land expansion in these small open economies
is associated with a “boom and bust” pattern of economic development, then
there are two possible consequences. First, economies that have increased their
agricultural land base significantly over the long run are likely to have lower levels
of GDP per capita then economies that have tended to reduce their dependence
on agricultural land expansion. For the latter countries, a shrinking agricultural
land base may be evidence that tradable manufacturing and other dynamic
sectors have become structurally more important in the economy relative to
natural resource sectors and that agriculture itself has become a more capital-
intensive, productive and innovative sector.12 Second, for those countries that
are dependent on agricultural land expansion, further increases in agricultural
area will tend to produce only modest increases in GDP per capita. Beyond a
certain point, additional increases in land expansion will be associated with lower
GDP per capita, because of the “boom and bust” pattern of resource-dependent
development described above.
A fairly straightforward way of empirically verifying the above phenomenon

is to estimate a relationship between GDP per capita and some measure of long-
run agricultural expansion. For example, if the latter indicator was some index,
12 In the small open economy model of Brander and Taylor (1997), if the country specializes in
the manufacturing good in the long run, it gains unambiguously from trade.
507
∀it, then the above hypotheses suggest that there may be a cubic relationship
between per capita income, Yit, and this indicator of long run agricultural land
change:
(1)
Table 49.2: Panel analysis of per capita income and long run agricultural
expansion for tropical developing countries, 1961-94
Dependent variable: GDP per capita (PPP, constant 1987 $)a
Parameter estimates:b
Explanatory variables All countries Lower income countriesc
(N = 1135) (N = 867)
Constant 14393.37 9560.07
(23.69)** (7.03)**
Long run agricultural land area change -24293.31 -16645.71
index (▫it)d (-19.04)** (-5.30)**
▫it2 15217.53 11013.18

(11.18)** (4.58)**
▫it3 -2896.32 -2330.33

(-6.59)** (-3.87)**
F-test for pooled model 168.01** 126.05**
Breusch-Pagan (LM) test 6576.23** 3614.50**
Hausman test 6.85 44.02**
Adjusted R2 0.368 0.937
Preferred model One-way random effects Two-way fixed
effects
Notes: a Mean for all tropical developing countries over 1961-94 is $2,593, and for lower income
countries $1,539. PPP is purchase power parity.
b
t-ratios are indicated in parentheses.
c
Countries with GDP per capita (PPP, constant 1987 $) less than $3,500 over 1961-94.
d
Mean for all countries over 1961-94 is 1.150, and for lower income countries 1.149.
** Significant at 1% level, * significant at 5% level.
Source: Author’s estimation.
In the above equation b0 > 0, b1 < 0, b2 > 0, b3 < 0 and | b1| > b2 would
imply that countries with increased long run agricultural land area would have
lower levels of per capita income than countries with decreased agricultural land
508
Edward B Barbier
area, and per capita income would tend to fluctuate with long run agricultural
land expansion.
The above relationship was estimated through employing a panel analysis of

tropical developing countries over 1961-94. Per capita income, Yit, is represented
by gross domestic product (GDP) per capita in constant purchasing power parity
(1987 $). The indicator ∀it is an agricultural land long run change index, created
by dividing the current (i.e. in year t) agricultural land area of a country by its
land area in 1961.13
The results of the analysis for all tropical countries and for low and lower
middle income countries (i.e. those economies with real per capita GDP less
than $3,500 over 1961-94) are shown in Table 49.2. For both regressions, the
estimated coefficients are highly significant and also have the expected signs and
relative magnitudes.14 Thus the estimations provide some empirical evidence that
agricultural land expansion in developing countries conforms to a “boom and bust”
pattern of economic development. This is seen more clearly when the regressions
are used to project respective relationships between long run agricultural land
expansion and GDP per capita, which are displayed in Figure 49.5.
As indicated in the figure, an increase in agricultural land expansion in

the long run is clearly associated with a lower level of per capita income than
decreasing agricultural land area. For all tropical countries, the turning point is a
long run agricultural change index of just under 1.2. For lower income countries
13 The data used in this analysis is from the World Bank’s World Development Indicators.
14 Although only the preferred models are indicated in Table 1, the panel analysis was performed
comparing OLS against one-way and two-way random and fixed effects models. Alternative
versions of these models also employed White’s robust correction of the covariance matrix
to overcome unspecified heteroskedasticity. However, heteroskedasticity proved not to be a
significant problem in both regressions. In the regression for all tropical developing countries,
the F-test for the pooled model and Breusch-Pagan LM test were highly significant, suggesting
rejection of the OLS model due to the presence of individual effects. The Hausman test was
significant only at the 10% level, suggesting that random effects specification is preferred to
the fixed effects model. The one-way model tended to outperform the two-way effects model.
In the regression for lower income countries, the F-test for the pooled model, the LM test
and the Hausman test were all highly significant, suggesting that the fixed effects model is
preferred. The two-way model tended to outperform the one-way effects model.
509
the turning point is 1.3. Although continued agricultural land expansion beyond
these points does lead to a slight increase in GDP per capita, this impact is short-
lived. For all tropical countries, per capita income starts to fall once the land area
index reaches 2.3; for lower income countries this occurs sooner at an index of
1.9. Note as well that for lower income countries, there is very little increase in
GDP per capita associated with expansion of land over the 1.3 to 1.9 range.
Figure 49.5: Projected trends in agricultural land expansion per capita income for
tropical developing countries
Source: Author’s estimation.
To conclude, even though a developing economy is endowed with abundant

natural resources, the country may not necessarily be exploiting this natural
wealth efficiently and generating productive investments. Or, as Wright (1990,
p. 666) suggests: “there is no iron law associating natural resource abundance
with national industrial strength.” It is clear that the open access conditions and
ill-defined property rights under which many resources, and especially land, are
exploited in developing economies is partly to blame. It is also the case that in
510
Edward B Barbier
many countries natural resource assets, including land, are not being managed so
as to maximize rents and/or whatever rents are being generated in the economy are
not being re-invested productively elsewhere, especially in tradable manufacturing
and other dynamic sectors.
Final remarks
Although our understanding of the role of natural resources in economic

development has improved markedly in recent decades, there is still much to
learn. Nevertheless, as I have argued in this lecture, the view that environmental
and natural resources should be treated as important economic assets, which can
be called natural capital, is becoming more accepted. Armed with this concept,
economists are now able to show the conditions under which depletion of
this natural capital stock may or may not lead to more sustainable economic
development.
However, the services provided by natural capital are unique and, in the
case of the ecological and life-support functions of the environment, are not well
understood. Improving our knowledge in this area is a critical task. It is also
one in which economists must learn to work more closely with scientists from
other disciplines, particularly biologists, ecologists and other natural scientists.
Such inter-disciplinary efforts are especially relevant for a host of complex
environmental management problems facing the world today, such as biodiversity
loss, climate change, and the spread of biological invasions and infectious diseases
(Barbier et al. 1994).
Better understanding of these complex environmental problems and of the

value of ecological services may also help eventually to resolve the “weak” versus
“strong” sustainability debate in economics. As I have noted in this lecture, the
heart of this debate concerns whether the environment has an “essential” role in
sustaining human welfare, and if so, whether special “compensation rules” are
necessary in order to ensure that future generations are not made worse off by
natural capital depletion today. These issues are unlikely to be resolved in the
near future, and I have not attempted to do so here. Nevertheless, it is clear that
the very minimum criterion for attaining sustainable economic development is
ensuring that an economy satisfies weak sustainability conditions. That is, as long
511
as the natural capital that is being depleted is replaced with even more valuable
physical and human capital, then the value of the aggregate stock – comprising
human, physical and the remaining natural capital – should be increasing
over time. This in turn requires that the development path of an economy is
governed by principles somewhat akin to Hartwick’s rule (Hartwick 1977). First,
environmental and natural resources must be managed efficiently so that the
welfare losses from environmental damages are minimized and any resource rents
earned after “internalizing” environmental externalities are maximized. Second,
the rents arising from the depletion of natural capital must be invested into other
productive economic assets.
The conclusion that efficient environmental resource management is

the minimum condition necessary for sustainable economic development may
surprise those who believe that the causality might run in the other direction.
Proponents of the latter view argue that the environmental Kuznets curve
literature provides evidence that environmental problems are likely to lessen as
economies grow and develop. However, as I have sought to clarify in this lecture,
the EKC literature does not support such a conclusion. Rather, many EKC
studies suggest that specific policies to protect the environment are necessary for
curbing certain forms of pollution and resource depletion, both currently and
in the future. How key environmental indicators change with rises in per capita
income is an important issue, but what is of more fundamental concern is how
different policies can affect this relationship. Specifically, we need to determine
what environmental policies are required to ensure that the needs of the present
are met without compromising the economic opportunities to meet the needs of
the future. With regard to these bigger policy issues, estimating EKC relationships
for various indicators of environmental degradation is instructive of likely trends
under current policies, but is perhaps less helpful in indicating what additional
policies and instruments should be implemented.
Finally, this lecture has also considered a recent paradox concerning the role
of natural resources in economic development: if natural capital is important for
sustainable development, why is the economic performance of many resource-
abundant developing countries lagging behind that of comparatively resource-
poor economies? The answer to this paradox seems to be fairly straightforward.
Simply because a developing economy is endowed with abundant natural
512
Edward B Barbier
resources, it does not necessarily follow that the country will exploit this natural
wealth efficiently and reinvest resource rents in other productive investments.
Ill-defined and lack of enforcement of property rights that create “open access”
conditions for exploiting land and other natural resources in developing countries
are part of the problem. In addition, rather than ensuring that any resource rents
earned are re-invested efficiently into other productive assets, current policies in
resource-abundant developing economies appear to work against this outcome.
Corruption, bureaucratic inefficiency and polices biased in favor of special
interests that gain from excessive resource extraction or conversion also exacerbate
these policy failures. The result is that land expansion and increased exploitation
of new resource “reserves” in many resource-dependent developing economies are
not fostering a “takeoff” into sustainable development but rather a “boom and
bust” pattern of economic growth and development.
In conclusion, the importance of natural resources to economic

development is now well-established. How a country manages its natural capital
stock is critical for achieving sustainable economic development. Moreover,
misinterpretations of the EKC literature aside, the causal relationship is clearly
from improved environmental management to enhanced economic development
and welfare, and not the other way around. On the other hand, poor policies and
the inefficient mismanagement of natural resources can also be detrimental to
growth and development. Of course, it will always be difficult to determine what
exactly is lost when we deplete natural resources and degrade the environment.
But at the very least, economic policies should be in place to ensure that welfare-
damaging environmental externalities are corrected, the rents generated from the
depletion of natural capital are maximized, and that these rents are reinvested
into dynamic and innovative sectors in the rest of the economy.
513
References
Andreoni, J. and Levinson, A. 2001, ‘The Simple Analytics of the Environmental Kuznets Curve’, Journal of
Public Economics 80: 269-286.
Ansuategi, A., Barbier, E.B. and Perrings, C.A. 1998, ‘The Environmental Kuznets Curve’, pp. 139-164
in J.C.J.M. van den Bergh and M.W. Hofkes (eds.) Theory and Implementation of Economic Models for
Sustainable Development, Amsterdam: Kluwer Academic Publishers.
Arrow, K., Bolin, B., Costanza, R., Dasgupta, P., Folke, C., Holling, C.S., Jansson, B-O., Levin, S.,
Mäler, K-G., Perrings, C.A. and Pimentel, D. 1995, ‘Economic Growth, Carrying Capacity, and the
Environment’, Science 268: 520-521.
Ascher, W. 1999, Why Governments Waste Natural Resources: Policy Failures in Developing Countries, Baltimore:
Johns Hopkins University Press.
Barbier, E. B. 1994, ‘Valuing Environmental Functions: Tropical Wetlands’, Land Economics 10(2): 155-
173.
Barbier, E.B. 1997, ‘Introduction to the Environmental Kuznets Curve Special Issue’, Environment and
Development Economics 2(4): 369-382.
Barbier, E.B. 1999, ‘Poverty, Environment and Development’, pp. 731-744 in van den Bergh, J.C.J.M, ed.
The Handbook of Environmental and Resource Economics, London: Edward Elgar.
Barbier, E.B. 2002, ‘Institutional Constraints and Deforestation: An Application to Mexico’, Economic
Inquiry 40(3): 508-519.
Barbier, E.B. and Burgess, J.C. 2001, ‘The Economics of Tropical Deforestation’, Journal of Economic
Surveys 15(3): 413-421.
Barbier, E.B., Burgess, J.C. and Folke, C. 1994, Paradise Lost? The Ecological Economics of Biodiversity,
London: Earthscan Publications.
Barbier, E.B. and Damania, R. 2002, ‘Lobbying, Trade and Resource Conversion’, Paper Presented at the
Workshop on ‘Trade, Renewable Resources and Biodiversity’, University of Tilburg, The Netherlands,
5-6 September.
Beckerman, W.A. 1992, ‘Economic Growth and the Environment: Whose Growth? Whose Environment?’
World Development 20: 481-496.
Bishop, R.C. 1993, ‘Economic Efficiency, Sustainability and Biodiversity’, Ambio 22(2-3): 69-73.
Brander, J.A. and Taylor, M.S. 1997, ‘International Trade and Open-Access Renewable Resources: The Small
Open Economy’, Canadian Journal of Economics 30(3): 526-552.
Brander, J.A.and Taylor, M.S. 1998, ‘Open Access Renewable Resources: Trade and Trade Policy in a Two-
Country Model’, Journal of International Economics 44: 181-209.
Carson, R.T., Jeon Y. and McCubbin, D.R. 1997, ‘The Relationship Between Air Pollution Emissions and
Income: US Data’, Environment and Development Economics (Special Issue on Environmental Kuznets
Curves) 2(4): 433-450.
Cole, M.A., Rayner, A.J. and Bates, J.M. 1997, ‘The Environmental Kuznets Curve: An Empirical Analysis’
Environment and Development Economics (Special Issue on Environmental Kuznets Curves) 2(4): 401-416.
Cropper, M. and Griffiths, C.W. 1994, ‘The Interaction of Population Growth and Environmental Quality’,
American Economic Review 84(2): 250-254.
Deacon, R.T. 1994, ‘Deforestation and the Rule of Law in a Cross-Section of Countries’, Land Economics
70(4): 414-430.
514
Edward B Barbier
de Bruyn, S. 1997, ‘Explaining the Environmental Kuznets Curve: Structural Change and International
Agreements in Reducing Sulphur Emissions’, Environment and Development Economics (Special Issue on
Environmental Kuznets Curves) 2(4): 484-504.
Findlay, R. 1996, ‘Modeling Global Interdependence: Centers, Peripheries and Frontiers’, American
Economic Review, vol. 86(2), 47-51.
Findlay, R. and Wellisz, S. eds. 1993, The Political Economy of Poverty, Equity and Growth: Five Small Open
Economies, New York: Oxford University Press.
Grossman, G.M. and Kreuger, A.B. 1995, ‘Economic Growth and the Environment’, Quarterly Journal of
Economics 110(2): 353-377.
Hartwick, J. 1977, ‘Intergenerational Equity and the Investing of Rents from Exhaustible Resources’,
American Economic Review 67: 972-974.
Holtz-Eakin, D. and Selden, T.M. 1995, ‘Stoking the Fires? CO2 Emissions and Economic Growth’, Journal
of Public Economics 57: 85-101.
Howarth, R.B. and Norgaard, R.B. 1995, ‘Intergenerational Choices under Global Environmental Change’,
pp. 111-138 in D. Bromley, ed. The Handbook of Environmental Economics, Oxford: Basil Blackwell.
Komen, M.H.C., Gerking, S. and Folmer, H. 1997, ‘Income and Environmental R&D: Empirical Evidence
from OECD Countries’, Environment and Development Economics (Special Issue on Environmental
Kuznets Curves) 2(4): 505-515.
Koop, G. and Tole, L. 1999, ‘Is There an Environmental Kuznets Curve for Deforestation?’ Journal of
Development Economics 58: 231-244.
Kuznets, S. 1955, ‘Economic Growth and Income Inequality’, American Economic Review 49(1): 1-28.
Lieb, C.M. 2002, ‘The Environmental Kuznets Curve and Satiation: A Simple Static Model.’, Environment
and Development Economics 7(3): 429-448.
López, R. 1989, ‘Exchange Rate Determination in Natural Resource-Rich Economies’, Revista de Análisis
Económico 4(1): 91-105.
López, R. 1994, ‘The Environment as a Factor of Production: The Effects of Economic Growth and Trade
Liberalization’, Journal of Environmental Economics and Management 27: 163-184.
Lpez, R. and Mitra, S. 2000, ‘Corruption, Pollution and the Kuznets Environment Curve,’ Journal of
Environmental Economics and Management, vol. 40(2), pp. 137-50.
Mäler, K.-G. 1995, ‘Economic Growth and the Environment’, in Perrings, C.A., Mäler, K-G, Folke, C.,
Holling, C.S. and Jansson, B-O, eds., pp. 213-224 in Biodiversity Loss: Economic and Ecological Issues,
Cambridge: Cambridge University Press.
Matsuyama, K. 1992, ‘Agricultural Productivity, Comparative Advantage, and Economic Growth’, Journal
of Economic Theory 58: 317-334.
McConnell, K. E. 1997, ‘Income and the Demand for Environmental Quality’, Environment and
Development Economics (Special Issue on Environmental Kuznets Curves) 2(4): 383-400.
Neary, J. P. and van Wijnbergen. S., eds. 1986, Natural Resources and the Macro Economy, Cambridge MA:
MIT Press.
Panayotou, T. 1997, ‘Demystifying the Environmental Kuznets Curve: Turning a Black Box into a Policy
Tool’, Environment and Development Economics (Special Issue on Environmental Kuznets Curves) 2(4):
465-484.
515
Panayotou, T. 1995, ‘Environmental Degradation at Different Stages of Economic Development’, in I.
Ahmed and J.A. Doeleman, eds., Beyond Rio: The Environmental Crisis and Sustainable Livelihoods in
the Third World, London: Macmillian.
Pearce, D.W. and Barbier, E.B. 2000, Blueprint for a Sustainable Economy, London: Earthscan Publications.
Pearce, D.W., Markandya, A. and Barbier, E.B. 1989, Blueprint for a Green Economy, London: Earthscan
Publications.
Pezzey, J.C.V. 1989, ‘Economic Analysis of Sustainable Growth and Sustainable Development’, Environment
Department Working Paper No. 15, The World Bank, Washington, DC.
Romer, P.M. 1996, ‘Why, Indeed, in America?” Theory, History, and the Origins of Modern Economic
Growth’, American Economic Review 86(2): 202-212.
Sachs, J.D. and Warner, A.M. 1995, ‘Natural Resource Abundance and Economic Growth’, National Bureau
of Economic Research Working Paper No. 5398, December.
Sachs, J.D. and Warner, A.M. 1997, ‘Fundamental Sources of Long-Run Growth’, American Economic
Review 87(2): 184-188.
Sachs, J.D.and Warner, A.M. 1999, ‘The Big Push, Natural Resource Booms and Growth’, Journal of
Development Economics 59(1): 43-76.
Selden, T. M. and Song, D. 1994, ‘Environmental Quality and Development: Is There a Kuznets Curve for
Air Pollution Emissions?’ Journal of Environmental Economics and Management 27: 147-162.
Shafik, N. 1994, ‘Economic Development and Environmental Quality: An Econometric Analysis’, Oxford
Economic Papers 46: 757-773.
Stern, D., Common. M.S. and Barbier, E.B. 1996, ‘Economic Growth and Environmental Degradation:
The Environmental Kuznets Curve and Sustainable Development’, World Developmen, vol. 24(7), pp.
1151-1160.
Toman, M.A., Pezzey, J.C.V. and Krautkramer, J. 1995, ‘Neoclassical Economic Growth Theory and
‘Sustainability’’, pp. 139-165 in D. Bromley, ed., The Handbook of Environmental Economics, Oxford:
Basil Blackwell.
Turner, R.K. 1993, ‘Sustainability Principles and Practice’, pp. 3-36 in R.K. Turner, ed., Sustainable
Environmental Management: Principles and Practice, 2nd ed., London: Belhaven Press.
Vincent, J.R. 1997, ‘Testing for Environmental Kuznets Curves within a Developing Country’, Environment
and Development Economics (Special Issue on Environmental Kuznets Curves) 2(4): 417-432.
World Bank (1992), World Development Report 1992, New York: Oxford University Press.
World Commission on Environment and Development (WCED) 1987, Our Common Future, New York:
Oxford University Press.
Wright, G. 1990, ‘The Origins of American Industrial Success, 1879-1940’, American Economic Review
80(4): 651-668.

E Role of Natural Resources in Economic Development PDF

Uploaded by

Copyright:

Available Formats

E Role of Natural Resources in Economic Development PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

E Role of Natural Resources in Economic Development PDF

Uploaded by

Copyright:

Available Formats

University of Adelaide Press

Chapter Title: 2002 – The role of natural resources in economic development

Book Title: Australia's Economy in its International Context

Surprisingly, however, contemporary economists appear to be largely

So what exactly is this gradual, largely unnoticed, yet possibly profound

The rest of this lecture is devoted to elaborating further on the “new

In sum, our understanding of the role of natural resources in economic

Natural capital and the economic system

Built Aesthetics, Human

Person-made, or physical, capital (KP), natural capital (KN), and human

Table 49.1: Classification of total economic values for aquatic ecosystems

Aquaculture Flood control Culture, heritage

Transport Storm protection

Wild resources External ecosystem support

Potable water Shoreline/river bank

Natural capital and sustainable development

Economists are generally comfortable with this broad interpretation

As noted in Figure 49.2, it is the total stock of capital employed by the

Figure 49.2: Sustainable economic development

Development that meets the needs of the present without

Welfare does not decline over time

Requires managing and enhancing a portfolio of economic assets

Natural Physical Human

Source: Adapted from Pearce and Barbier (2000).

However, it is not simply the aggregate stock of capital in the economy

by depleting the world’s stock of natural wealth irreversibly, the development

While it is generally accepted by most economists that economic

However, economists concerned with this problem appear to be divided into

According to the weak sustainability view, there is essentially no inherent

In contrast, proponents of the strong sustainability view argue that physical or

Growth, environment and environmental Kuznets curves

Figure 49.3: An environmental Kuznets curve for sulfur dioxide

Second, the EKC hypothesis poses an important intellectual challenge.

However, other commentators have been more cautious, noting that

However, even when an EKC relationship is estimated, often the turning

Figure 49.4: Projected trends for global SO2 emissions

Source: Stern et al. (1996).

In sum, the implications of the EKC literature for sustainable development

Natural resource abundance and economic growth

It is therefore tempting to conclude that, if natural capital is so important

However, if per capita income is to be sustained or increased in these

In fact, recent evidence suggests that resource-abundant countries, especially

Such evidence might be considered surprising, given the commonly held

terms of non-reproducible resources grew both absolutely and relative to the

However, it is doubtful that the unique circumstances over 1879-1940

If natural resource booms are not important catalysts for economic

may actually reduce welfare in that economy. As the resource-abundant country

Current policies in resource-abundant developing economies appear not to

As mentioned above, the classic case of open access resource exploitation

A fairly straightforward way of empirically verifying the above phenomenon

▫it2 15217.53 11013.18

▫it3 -2896.32 -2330.33

The above relationship was estimated through employing a panel analysis of

As indicated in the figure, an increase in agricultural land expansion in

Source: Author’s estimation.

To conclude, even though a developing economy is endowed with abundant

Although our understanding of the role of natural resources in economic

Better understanding of these complex environmental problems and of the

The conclusion that efficient environmental resource management is