Transcript Natural Resource Abundance and Economic Growth

Natural Resource Abundance
and Economic Growth
Some Lessons from
Norway and Iceland
Thorvaldur Gylfason
Natural Resources:
A Mixed Blessing?
Consensus on foreign aid and assistance
It is good for growth if accompanied by
sound economic policies
Guiding principle in IMF and World Bank dealings
with member countries
Seems also to apply to natural resource
abundance
Natural resources are good for growth if
accompanied by sound economic policies
Why worry?
What can go wrong?
Too much emphasis on natural resources
May be at the expense of human resources
Education may suffer
May draw resources available for investment
away from other sectors
Domestic and foreign investment may suffer
May result in Dutch disease, resulting in
overvaluation of the currency, thus hurting
profitability in and exports from other sectors
 Total exports may suffer
So what?
Education, investment, and exports
are almost surely good for growth
Rent seeking, often associated with
natural resources, may hurt growth
So, if natural resource abundance hurts
education, investment, and exports and
encourages rent seeking, …
… then it may reduce economic growth in
the long run
Natural wealth and
economic growth
National economic output
D
F
E
C
B
A
A natural resource boom makes a
country better off at least for a while,
but if it reduces growth, then, after a
time, the country will be worse off
than it would have been without the
boom, other things being equal.
Time
Empirical evidence:
Education
Same applies to
primary and
tertiary education
Figure 4. Secondary Education and Natural
Capital
A 3 percentage
point increase in
the share of
natural capital in
national wealth
goes along with a
2 percentage
point decrease in
secondary-school
enrolment from
one country to
another
Secondary-school enrolment rate 19801997 (%)
120
y = -1.5414x + 63.592
R2 = 0.3194
100
80
60
40
20
0
0
10
20
30
40
50
-20
-40
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Domestic investment
How about
foreign
investment?
Figure 3. Domestic Investment and Natural
Capital
A 5 percentage
point increase in
the natural
capital share
goes along with
a decrease in
the domestic
investment rate
by 1 percentage
point
Ratio of gross fixed domestic
investment to GDP 1960-1997 (%)
45
40
y = -0.2214x + 22.82
R2 = 0.1819
35
30
25
20
15
10
5
0
0
10
20
30
40
50
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Foreign investment
Foreign investment
is export of capital.
How about exports
of goods and
services?
Figure 6. Foreign Investment and Natural Capital
A 30 percentage
point increase in
the natural
capital share
goes along with
a decrease in
the foreign
investment ratio
by 1 percentage
point
Gross foreign direct investment 19751997 (% of GDP)
7
y = -0.0293x + 1.4978
R2 = 0.0449
6
5
4
3
2
1
0
0
10
20
30
40
50
-1
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Exports
Figure 2. Exports and Natural Capital
A 3 percentage
point increase
in the natural
capital share
goes along
with a 1
percentage
point decrease
in the export
ratio
Ratio of exports to GDP 1960-1997 (%)
100
90
y = -0.3098x + 28.898
R2 = 0.0531
80
70
60
50
40
30
20
10
0
0
10
20
30
40
50
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Rent seeking I
How about
corruption?
Figure 5. Import Protection and Natural Capital
A 4 percentage
point increase
in the natural
capital share
goes along
with a 1
percentage
point increase
in the import
tariff rate
Import duties 1975-1996 (% of imports)
40
y = 0.2734x + 8.2041
35
2
R = 0.1291
30
25
20
15
10
5
0
0
10
20
30
40
50
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Rent seeking II
So what does all
this mean for
growth?
Figure 8. Corruption and Natural Capital
10
9
A 6 percentage
point increase
in the natural
capital share
goes along with
a 1 percentage
point decrease
in the honesty
index, which
means more
corruption
Corruption index 1996
8
y = -0.1514x + 6.4915
R2 = 0.1074
7
6
5
4
3
2
1
0
0
5
10
15
20
Share of natural capital in national wealth 1994 (%)
25
Empirical evidence:
Growth I
Does this result
hold for rich
countries as well
as poor?
Figure 10. Economic Growth and Natural Capital
1960-1997
A 12
percentage
point increase
in the natural
capital share
goes along with
a 1 percentage
point decrease
in the per
capita growth
rate from one
country to
another
Annual growth of GNP per capita 19601997 (%)
8
y = -0.0792x + 2.7807
R2 = 0.2575
6
4
2
0
0
10
20
30
40
50
-2
-4
Share of natural capital in national wealth 1994 (%)
60
Empirical evidence:
Growth II
Rich countries:
Same story, but
slightly weaker
relationship
Figure 11. Rich Countries: Economic Growth and
Natural Capital 1960-1997
Annual growth of GNP per capita 19601997 (%)
7
y = -0.0504x + 2.9517
6
2
R = 0.1112
5
4
3
2
1
0
0
10
20
30
40
Share of natural capital in national wealth 1994 (%)
50
Empirical evidence:
Growth III
Poor countries:
Same story,
but stronger
relationship
Figure 12. Poor Countries: Economic Growth and
Natural Capital 1960-1997
Annual growth of GNP per capita 19601997 (%)
8
y = -0.0723x + 2.4713
R2 = 0.2035
6
4
2
0
0
10
20
30
40
50
-2
-4
Share of natural capital in national wealth 1994 (%)
60
Challenges for
Norway and Iceland
Norway’s fish
Tiny fishing industry
Employs less than 1% of labor force
Contributes less than 1% to GDP
All the resource rent, at roughly 20-25% of the
value of the catch, is allowed to dissipate
Inefficient, used to be heavily subsidized
Costly also in other respects
Perhaps the single greatest obstacle to Norway’s
EU membership in 1972 and 1994
Iceland’s Fish
Larger fishing industry than in Norway
Employs 11% of labor force
Account for 16% of GDP and 50% of exports
Rent from fisheries is approx. 5% of GNP
Permits (quotas) are given away for free
State gets nothing, even if the fish is a common
property resource by law
Declared unconstitutional by Supreme Court
Arguments for fees, based on efficiency and
equity
Education and health care in crisis
Norway’s Oil
Large petroleum sector
Second largest oil exporter in the world
Contributes 9-10% to GNP
Oil wealth is estimated at 50-250% of GNP
State takes in about 80% of the oil rent
Mostly through taxes and fees
• The oil is a common property resource by law
Oil revenue is deposited in oil fund
• Invested in foreign securities
• Will become huge in a few years if they can resist the
temptation to use the money to meet current needs
But Norway Needs to Be
Careful
Many other oil-producing countries have
serious economic problems
Iran: -1% growth of per capita GDP since 1965
Venezuela: -2%
Saudi Arabia: -3%
Norway is one of the few resourceabundant countries that has consistently
performed well
Iceland’s economic performance has been mixed
Conclusion: What Iceland
and Norway Need to Do
Sell oil drilling and fishing permits to
domestic and foreign firms on a level
playing field
OECD, IMF, and WTO recommend this
Use proceeds to improve the efficiency of
tax collection
By lowering distortionary taxes (income tax, VAT)
In Iceland, also necessary to improve education
and health care
The End