The Natural Resources Paradox

The Natural Resources Paradox refers to the paradox that countries and regions with an abundance of natural resources, especially non-renewable resources like minerals and fuels, tend to have less economic growth and worse development than countries with fewer natural resources. Japan and Singapore have achieved great economic success with relatively few natural resources. Some nations with vast stocks of natural resources, such as Nigeria and Russia, remain relatively poor.

 How can some nations with few natural resources, such as Japan, Singapore, Israel, Taiwan, South Korea and Hong Kong be relatively wealthy? Historically, these countries had the advantage of lower labor costs. They started with labor intensive manufacturing, and gradually moved to high-tech industries. Over time, they increased investment levels in physical (factories and machines) and human capital (the health, education, and training of workers) to promote long-term economic growth. The widespread use of new technologies often requires new machinery and training of workers.

Which factors support long-term economic growth?  Greater productivity through investments in physical capital, human capital, and technology;  Control inflation and maintain political stability;  Encourage international trade;  Protect property rights to encourage people to work, save, and invest in themselves and in business opportunities.  Nations with the greatest economic growth are those that adopt the key characteristics of a market economy.

Factors that promotes long-term economic growth and high standards of living  Greater economic freedom. This includes lower taxes, fewer government regulations, good monetary policies, protection of property rights and de-centralized decision-making in most sectors of the economy.  Competitive markets  Low inflation  Political stability  Free trade

 How can other nations with vast amounts of natural resources, such as Nigeria, Russia, Mexico, Iran, Libya, India, Costa Rica, Haiti, Armenia, Burma, Azerbaijan, Georgia and Jamaica be relatively poor? A decline in the competitiveness of other economic sectors Large increases or decreases in revenues from the natural resource sector due to global commodity market swings Government mismanagement of resources Weak, ineffectual, unstable or corrupt institutions

1. Which of the following factors contributes least to economic growth? A. Greater economic freedom B. Large amounts of natural resources C. Low rates of inflation D. High investment in physical and human capital

2. Greater economic freedom is associated with: A. Lower life expectancy. B. Terrorism. C. Political repression. D. Greater economic growth.

3. What do we mean by “investment in human capital”? A. Higher spending on education and training B. Higher spending on population control measures C. Government spending on exploration of natural resources D. All of the above