How Do Natural Resources Affect Economic Growth?

Topics: Economic growth, Peak oil, Russia Pages: 14 (4464 words) Published: April 1, 2013

Weak Government4
Unaccountable government4
Dutch disease5
Growth and oil price6
Appreciation of Real Exchange Rate7
Manufacturing and services sector7
Growth of real wage8
Benefits from the management of the natural resources9
The separation of power10
Diversification growth10


Despite common opinion, having natural resources could not be always a bless for a country. With this paper we want to provide an overall idea of the influence of natural resources wealth on the economic growth. Starting from an initial explanation of “Resource Curse”, the analysis will be focalized on Dutch Disease in Russia: one negative cause of Resource Curse referring to the largest oil producer country. Moreover the study will show the case of Norway, for which the good management of natural resources wealth is still beneficial. Having natural resources, therefore, could be a beneficial if the government is able to control and handle all the resulting economic implications.


For several years the possession of oil, natural gas, or other valuable natural resources conferred on resource-exporting countries economic growth and an increase of average income. However, as it has been observed, many African countries such as Angola, Nigeria, Sudan, and the Congo are rich in oil, diamonds, or other minerals, and yet their inhabitants are still experiencing low per capita income and poor quality of life. In the meantime, the East Asian economies like Japan, Korea, Taiwan, Singapore and Hong Kong have achieved western-level standards of living despite being rocky islands with virtually no exportable natural resources. The scatter plot (Figure 1, Appendix) reproduced from Manzano and Rigobon (2001), shows the relationship between primary export as a fraction of GDP (horizontal axis) and growth (vertical axis) in the period between 1970-1990. The relationship on average is lightly negative. This negative correlation is not very strong, (there are some successful cases) but it surely implies no positive correlation between natural resource wealth and economic growth. The resource curse (Paradox of Plenty) refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. How could abundance of hydrocarbon deposits, or other mineral and agricultural products, be a curse? This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable and corrupted institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities). Natural resource dependence has an impact on governments. A strong and effective government should be able to offset some of the economic and social problems caused by resource dependence. But resource dependence tends to influence governments themselves, making them more susceptible to conflict. This seems to occur through mechanisms as corruption, state weakness and reduced accountability. Volatility

Many natural resources prices are more fluctuating than other prices. For the last century, the international prices for primary commodities – including oil and minerals – have been more volatile than the prices for manufactured goods. Since 1970, this volatility has grown worse. This means that when countries become more dependent on oil and minerals...

References: EUROMONITOR, “Russia’s Resource Curse: Oil Price Dependency Weighs on Economy” 8 October, 2012 from
Oomes, N
Cappelen, Ådne; Mjøset, Lars (2009) : “Can Norway be a role model for natural resource abundant countries?”
Research paper/UNU-WIDER,No.2009.23,
Beck R., Kamps A., Mileva E., (2007) “Long-term growth Prospects for the Russian economy”, European Central Bank- Eurosystem, Occasional Paper Series N 58 / March 2007
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