Sachs and Warner - Natural Resource Abundance and Economic Growth

Sachs, J., and Warner, A.,  “Natural Resource Abundance and Economic Growth” (Harvard Institute of Economic Research Discussion Paper No. 517, Cambridge, Massachusetts, 1997)

This paper explores the link between natural resource abundance and slow economic growth. One of the most startling characteristics of economies with abundant natural resources is the tendency for them to grow less rapidly than natural resource scarce economies. In this paper the authors' make an attempt at confirming the adverse effects of resource abundance on economic growth using an econometric based world-wide comparative study.

In recent years there have been many studies focusing primarily on the concept of the ‘resource curse’ the apparent ‘paradox of plenty’ where at its core lay some basic economic arguments a major one of which is the ‘Dutch Disease’ phenomenon.  The paper expands the ‘Dutch Disease’ principle and attempts a study intended to show that resource dependence has a negative effect on growth rates, confirming the main results of the 'resource curse' literature. The main aim is to find the link with a high ratio of natural resource exports to GDP and low growth rates. The findings indicate that the negative relationship between the two still remain even after controlling variables found to be important for economic growth; some of these variables include, but are not necessarily limited to: initial per capita income, trade policy, government efficiency and investment rates.

With the guide of empirical data and econometric models, the authors explore the motivating factors for this negative relationship, they do so by taking a country-wide study on the effects of resource wealth and dependency on the political economy, trade policy, bureaucratic efficiency, and other such determinants of growth. Although strong evidence is found to suggest a negative relationship between natural resource intensity and subsequent growth, the authors' caution against subsidizing or protecting the non-EI sectors as a strategy for growth, since government policies to promote non-resource industries would entail direct welfare costs of their own which in most cases, they argue, could be larger than the benefits intended.

 

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