Resource Depletion And Economic Sustainability In Malaysia

Countries richly endowed with natural resources have, on average, developed less rapidly than counties that are poor in natural resources. Among the several possible explanations for this phenomenon is a failure to invest sufficiently in reproducible capital to offset the depletion of natural capital. This requirement for economic sustainability can be empirically investigated by analyzing modified measures of net investment and net domestic product. Estimation of these measures involves calculating the economic depreciation of natural resources, a task that has been problematic in previous studies. Malaysia provides an ideal case for such empirical investigations, as it is one of the world's most resource-rich counties yet also has one of the world's fastest growing economies, consists of three subnational regions that differ significantly in terms of economic structure, and has sufficient data for estimating conceptually correct measures of natural resource depletion. Results of the analysis indicate that Malaysia has developed sustainably, despite substantial resource depletion. This is not the case in two of the regions, however, where trends in both net investment and net domestic product indicate that current consumption levels cannot be sustained. Nevertheless, the regional differences in sustainability might be consistent with optimal national use of the rents generated by exploitation of the country's natural resources.