Environmental Engineering Reference
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importance of education, and development of skills and of technological capacity. In the light
of recent mainstream thinking on growth and trade, there is nothing startling about this
conclusion.
However, if there is now universal agreement on the policy prescription, why has it been
so di
cult to achieve? Or, as Hayami (2001, p. 114) has stated, ever since the develop-
ment theories of Hla Myint (1958) and W. Arthur Lewis (1954), it has been well known
that
whether economic growth based on exploitation of natural resource slack could lead to sus-
tained growth and increased welfare of indigenous people depended critically on mobilization
of resource rent for investment in human capital and on improvements in both physical and insti-
tutional infrastructure for ecient functioning of the market mechanism.
Resource dependence and the resource curse
One proposed explanation of the poor performance of resource-dependent economies is
the resource curse hypothesis. This phenomenon is often linked to the 'Dutch disease'
e
ect arising from sudden trade liberalization or a resource price boom. 1 There are two
components to the 'resource curse'. First, economies with large natural resource sectors
relative to manufacturing and services will grow more slowly, even if no resource boom
occurs. Because manufacturing and advanced services lead to a more complex division of
labor and innovation, these sectors are more dynamic and will produce more economy-
wide growth. For example, 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). Second, a resource price boom or windfall may lead
to increased growth initially, but this will be only a temporary gain. 2 As a result of the
boom, the natural resource sector will expand and draw economic resources away from
the more dynamic sectors, such as manufacturing. The result is that in the long run the
economy will become more specialized in natural resource production and export, and
thus growth may even slow down.
Sachs and Warner (1999)
ff
nd over the period 1960-94 in Latin America that only in
Ecuador did a resource boom have a positive and lasting e
fi
ect on GDP per capita. In
Chile and Colombia there appears to have been a resource boom e
ff
ect but with little
impact on economic development, and in 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' resource boom e
ff
ect. Sachs and colleagues have also conducted
other cross-country analyses that seem to verify that countries with a high ratio of natural
resource exports to GDP have tended to grow less rapidly than countries that are rela-
tively resource poor (Rodríguez and Sachs, 1999; Sachs and Warner, 1997; 2001). 3 Other
studies have also shown that resource dependence is negatively correlated with growth
across countries (Bulte et al., 2005; Ding and Field, 2005; Mehlum et al., 2006; Neumeyer,
2004).
Special features of certain developing countries may make them particularly vulnera-
ble to this type of commodity boom impact. For example, by examining eight country
case studies - Cameroon, Ecuador, Gabon, Indonesia, Mexico, Nigeria, Papua New
ff
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