are resource abundant economies disadvantaged

8/2/2019 Are Resource Abundant Economies Disadvantaged

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ARE RESOURCE ABUNDANT

ECONOMIES DISADVANTAGED?

BYKYM ANDERSON

PRESENTED BY

JAVERIA RAB SIDDIQUI (7631)


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OBJECTIVE

Why economies well endowed with naturalresources relative to other factors of productionhave grown slower than other economies over thelong term?

Own distortionary policy regimes.


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RECENT DEVELOPMENTS

Renewed interest in national economicperformance

Global interest in environmental issues

Increased calls for more governmentintervention in environment issues


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INTERNATIONALDIMENSIONS

Liberalization of trade in goods, technologies,services and financial capital.

International environmental agreements


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WHY HAVE RESOURCE RICH ECONOMIESGROWN RELATIVELY SLOWLY

Worlds fastest growing economies: Hong Kong,Singapore, China, Korea, Japan, Taiwan.

Slow growing advanced economies: Australia,

Argentina, New Zealand.

Sachs and Warner (1995) explore regressionrelationships between GDP growth from 1970 to

1989 and the ratio of resource-based exports toGDP in 1970 for a sample of 97 developingcountries.


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CONTINUED

Anderson (1995a) explores a slightly longer period withboth wealthy and developing countries, using as acomparative advantage index an estimate of food self-sufficiency ratios in the early 1980s at free-trade prices.

16th Century French political philosopher Jean Bodin(1576)

Men of a fat and fertile soil are most commonly

effeminate and cowardly; whereas contra wise a barren

country makes men temperate by necessity, and by

consequence careful, vigilant and industrious.


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CONTINUED

Cultural determinism

My impression as to your cheap labour was soon

disillusioned when I saw your people at work. No doubt

they are lowly paid, but the return is equally so; to see

your men at work made me feel that you are a very

satisfied easy-going race who reckon time is no object.

When I spoke to some managers they informed me that

it was impossible to change the habits of national

heritage- Australian Consultant in 1915


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CONTINUED

Prebisch (1964):

Resource-abundant economies face continual decline

in their terms of trade. More growth-inducing factors associated with

manufacturing industries than primary production.

Resource-poor economies have more scope to grow

via technological catch-up. The exporters of resource-abundant countries face

larger protectionist barriers abroad


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DETERIORATING TERMS OF TRADE

The price of primary products relative to manufacturesin international markets appears to have been on along-run decline for a century or more. (Grilli and Yang

1988).

Agricultural technologies have proven to be verymalleable, becoming more labour-saving as the relative

price of labour rises (Hayami and Ruttan 1985).


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CONTINUED

Total productivity growth

Bernard and Jones(1996). Average TFP growth rate of

2.6 % for agriculture compared with 1.2 % for industry.

Martin and Mitra (1996) Agriculture TFP growth ratearound twice that of manufacturing.


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CONTINUED

Important contributor to productivity growth is the speedwith which new technologies can be imported, adaptedand adopted.

Primary production can not contribute to long runeconomic growth because of finiteness of naturalresource base.

Technological developments continue to drive down therelative economic importance of natural resources inprimary production.


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CONTINUED

Declining terms of trade for primary exporterscould explain at most only a small part of therelatively lack-lustre growth performance of

resource-rich economies, but that still needs tobe tested empirically.


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1.2 MORE GROWTH INDUCING EXTERNALITIES ININDUSTRY

Assertion by Adam Smith and David Ricardo, there aremore growth inducing externalities associated withmanufacturing than with primary industry.

Marshall (1890) manufacturing faces increasing returnsbut primary production faces decreasing returns.

This idea was revived recently by Matsuyama (1992)using a two-sector model in which manufacturing is

characterized by learning-by-doing that is external tothe firm but internal to the sector, an idea extended bySachs and Warner (1995) for a `Dutch disease' modelwith a third sector producing non-tradable services.


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1.3 MORE SCOPE FOR TECHNOLOGICALCATCH UP IN RESOURCE POOR ECONOMIES

Backward economies able to readily borrowsuperior technology from abroad are likely togrow faster than those countries which depend

on indigenous growth in innovation.

Resource richness does not refer to theaggregate endowment of resources but rather tothe ratio of natural resources to other resources.


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1.4 PRIMARY EXPORTS FACING HIGHERPROTECTIONIST BARRIERS.

The agricultural and coal protectionismcertainly lowers international prices for thoseproducts.

The effects of food policies of rich countrieson international food prices have been offsetalmost exactly by the effects of opposite

policies of poorer countries. (Tyersand Anderson)

Interdependencies exist between groups ofcountries.


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1.5 ABOVE AVERAGE DISTORTIONS

Economies that are less open to trade,investment and technology inflows grow slowerand, conversely that those economies thatreform most in multilateral trade liberalisationsgain the most.

Resource abundant economies try to protecttheir manufacturers through limiting foreigninvestment, tech.

Land scarce economies are protecting farmers.

Farmers are protecting small part of economywhile resource rich are protecting large part of

economy.

HOW WILL ENVIRONMENTAL CONCERNS


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HOW WILL ENVIRONMENTAL CONCERNSALTER GROWTH PROSPECTS FORRESOURCE-RICH ECONOMIES?

With economic growth comes increasingdemands for a cleaner environment.

Governments are thus asked to impose

tougher environmental standards as incomesrise.

Industry producers think they are losing

competition because of environmentalstandards. This is only true if standards applyonly to them.


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EFFECTS ON COMPARATIVE ADVANTAGE

If the adopted environmental regulationsovercome environmental externalities optimally,they can be thought of as just another determinant

of comparative advantage. Environmental regulations are positively

correlated with urbanization and income.

Strong environmental laws will help resource rich

economies.


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GREENING OF PROTECTIONISM

European Union Council Regulations allowingenvironmental subsidies to agriculture.

Interest groups are beginning to focus on other

causes of comparative cost differences. Uruguay Round produced agreements on

Technical Barriers to Trade and on the

Application of Sanitary and PhytosanitaryMeasures.


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CONCLUSION

A key explanation for the relatively slow growthis likely to have been their own distortionarypolicies.

Shift in economic policy of Australia and NewZealand.

Environmentalism has the potential to raisethe value of natural resources.

Trade off between economy and environment.

Example for other developing countries.


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THANK YOU!

are resource abundant economies disadvantaged

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