Natural resources and economic growth: From dependence to diversification

This chapter reviews some aspects of the experience of natural-resource- rich countries around the world since the 1960s. The discussion will emphasize five main channels through which natural resource intensity appears to have inhibited economic growth across countries. By natural resource intensity is meant the extent to which a country depends on its natural resources. Resource abundance per se need not do any harm: many countries have abundant natural resources and have managed to outgrow their dependence on them by diversifying their economic activity. An important challenge to policy makers in many developing countries with abundant natural resources is to find ways to reduce their dependence on these resources, through successful diversification of economic activity. The chapter offers some suggestions along these lines. As we proceed, an attempt will be made to provide a glimpse of some of the empirical results that have emerged in recent years from studies of the cross-country relationships between natural resource dependence and economic growth and various key determinants of growth across the world. Even if the evidence reviewed below is exclusively cross-sectional, it reflects a general pattern that accords well with a number of historical case studies of individual resource-rich countries.² This broad review is followed by a brief discussion of the disappointing economic growth record of the OPEC countries, and then by a brief discussion also of the lessons that may be drawn from Norway's singularly successful management of its oil wealth.