Does Having Natural Resources Necessarily Lead To Economic Growth and Development - Essay Example

Does Having Natural Resources Necessarily Lead To Economic Growth and Development?This paper explains whether a country which is well endowed with natural resources gains in terms of economic growth and development or if it has a negative impact commonly known as a natural resource curse. It is important to understand keywords such as natural resources, economic growth, economic development and gross domestic product (GDP). Natural resources are useful materials such as oil and gas usually found on the earth’s surface.

Economic development is the sustainable increase in the people`s standard of living and measured using per capita income while economic growth is the increase in the capacity of a given country to produce goods and services over time and is reflected by the GDP (Harrison 3). Past decades have proved that valuable natural resources such as natural gas, oil deposits and minerals do not necessarily lead to economic growth. This is evidenced by oil rich African countries such as Angola, Nigeria, Congo and Sudan.

These countries earn several millions of dollars annually through oil exports yet the foreign exchange or the riches gained over the years has never been converted into a noticeable increase in GDP. In comparison, Asian countries such as Japan, South Korea and Taiwan have experienced economic growth which can rival those of western countries. It is important to note that such countries do not have meaningful natural resources (Frankel 3). The explosion of the car manufacturing industry in the twentieth century led to an increase in the demand of natural resources such as rubber and copper.

Minerals were abundantly extracted in several countries like the Netherlands and in time replaced manufacturing as the dominant sector of the economy. With time, the Dutch economy and other similar ones suffered due to the specialization of production and processing of the main resource extracted. The discovery of natural resources did have a positive impact on economic growth but over time, such economies as Netherland became stagnant. The common trend of availability of natural resources combined with slow or stagnant economic growth has been termed the Dutch Disease type of economy (Bailey, Hartarska & Elliot 3).

Natural resources can also be a blessing to a country’s economy. A good example of this is Norway, which is the second largest oil exporter. Norway’s oil exports have surpassed other sectors and its foreign direct investment increased to 8% of GDP as of 1998. The manufacturing sector declined in relation to GDP since oil was discovered in the 1970s. The proportion of exports from the manufacturing sector reduced from 60% in 1974 to 22% in 2002. Norway employed a strategy of using income from oil to invest in social welfare such as education.

College entry rose from 26% to 62% between 1980 and 1997 (Zoega & Gylfason 10). An important characteristic of Norway which separates it from other OPEC countries is the fact that it was developed before it discovered oil. Its social and financial institutions were fairly mature. This advantage facilitated the efficient management of the oil wealth. Other economies such as Saudi Arabia have seen an increase in GDP since the discovery of oil deposits. This paper therefore finds that natural resources lead to accumulation of wealth by various resource rich countries.

The natural resources owned by a country do not however necessarily lead to a prosperous economy. Some of the world’s richest economies such as Japan, Hong Kong and Singapore gained their success without natural resources, but by exploiting other sectors of the economy (Zoega & Gylfason 1). Some countries on the other hand built their economies due to efficient and prudent use of natural resources (Barbier 10). Countries such as Saudi Arabia and Qatar have enormous GDP singularly due to natural resources.

Works CitedBarbier, Edward. The Role of Natural Resources in Economic Development, 2003. University of Adelaide: Blackwell Publishing Ltd. Print. Elliott, Vaughn, Hartarska, Valentina and Bailey, Conner. Natural Resources Endowment and Economic Growth in the Southeastern United States, 2007. Auburn University: American Agricultural Economics Association Annual Meeting. Print. Frankel, Jeffrey. The Natural Resource Curse: A Survey, 2010. Harvard University: University of Pennsylvania Press. Print. Harrison, Fidelis Ezeala.

Economic Development: Theory and Policy Applications,1996. Westport: Greenwood publishing group. Print. Zoega, Gylfi and Gylfason, Thorvadur. Natural Resources and Economic Growth: The Role of Investment, 2001. University of Iceland: Center for Business and Policy Studies. Print.