Chapter 12: Problem 4

Natural resources are neither necessary nor sufficient for economic growth. Explain.

Short Answer

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Natural resources are neither necessary nor sufficient for economic growth because economic growth does not solely depend on natural resources. It also requires human capital, technological innovation, and institutional quality. Moreover, merely having abundant natural resources does not guarantee economic growth; efficient management and utilization of these resources are crucial to economic development.

Step by step solution

Define Natural Resources

Natural resources are substances derived from the environment. They encompass such components as minerals, forests, water bodies, arable land and so on. They can be categorised into two: renewable (forests, fish etc.) and non-renewable (coal, oil etc.).

Define Economic Growth

Economic growth refers to a rise in a country’s output of goods and services, usually expressed as an increase in real Gross Domestic Product (GDP) or GDP per capita. Growth can result from several factors, such as advancements in technology, accumulation of physical and human capital, and improvement in the quality of institutions.

Natural Resources are not Necessary for Economic Growth

Economic growth is not solely dependent on natural resources. Other factors like human capital, physical capital, and technology also contribute to growth. Countries with scarce natural resources can invest in human capital (education and training), improve technology, and strengthen their institutions to achieve economic growth. Examples are Japan, Singapore, and Switzerland—they lack abundant natural resources but their investment in technology and human capital have propelled their economies.

Natural Resources are not Sufficient for Economic Growth

Having abundant natural resources doesn't guarantee economic growth. This is because economic growth also depends on how efficiently these resources are managed and used. For instance, some countries with abundant natural resources have poor economic performance- a phenomenon often referred to as the 'resource curse'. Therefore, efficient resource management, technology, human capital and institutions are equally, if not more, important.

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