Are Resource Abundant Economies Disadvantaged
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Transcript of 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!