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Natural Resources And Economic Growth: The Role Of Investment

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  • Thorvaldur Gylfason
  • Gylfi Zoega

Abstract

This paper begins by a brief review of empirical evidence that seems to indicate that economic growth since 1965 has varied inversely with natural resource abundance or intensity across countries. The paper then proposes a new linkage between natural resources and economic growth, through saving and investment. When the share of output that accrues to the owners of natural resources rises, the demand for capital falls and this leads to lower real interest rates and less rapid growth. Moreover, the analysis shows that the discrepancy between the privately and socially optimal rates of growth increases with the natural capital share. Empirical evidence from 85 countries from 1965 to 1998 suggests that natural capital may on average crowd out physical as well as human capital, thereby inhibiting economic growth. The results also suggest that, across countries, heavy dependence on natural resources may hurt saving and investment indirectly by slowing down the development of the financial system.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 142.

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Date of creation: Feb 2002
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Handle: RePEc:chb:bcchwp:142

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