The Paradox of Natural Resources in Economic Development

Introduction

Contrary to popular belief, natural resources do not inherently contribute to economic development. In fact, they often pose a hindrance, leading to a paradox that seems contrary to the intuitions of those unfamiliar with economic reasoning. This article delves into the theory behind this paradox and provides empirical evidence to support the argument.()

Understanding Economic Development Through Development of Resources

Economic development is not simply about exploiting natural resources but involves the application of human knowledge, skills, and tools. For instance, consider Bangladesh's agricultural growth over time. In 1960, Bangladesh grew 7 million tons of staple food grains from 24 million acres of farmland, while in 2020, the same land grew 42.6 million tons from 18 million acres. This example clearly shows that the same amount of land can produce more food through the application of better knowledge and techniques.

The Role of Productive Knowledge in Development

The true driver of development is not the natural resources themselves but the knowledge that enables their better use. Historical data supports this view, showing that as economies mature, their reliance on natural resources decreases. For example, developed economies derive less than 1% of their GDP from natural resources, while underdeveloped countries rely heavily on them.

Comparing Intensive and Extensive Cultivation

The choice between intensive and extensive cultivation is crucial. Extensive cultivation, which involves expanding farmland, increases the distance traveled and transported, thereby increasing costs. In contrast, intensive cultivation utilizes advanced technologies and techniques to maximize yield from the same land. For instance, the use of tractors, irrigation, and fertilizers allows for the production of more food without increasing land use.

Empirical Evidence and Theoretical Insights

Empirical data from various countries confirms that technological and knowledge-based development leads to increases in productivity, not just in agriculture but across all sectors. By focusing on the development of skills and tools, nations can enhance the output per unit of land. Russia, Canada, and Australia, for example, suffer from excessive land areas that burden transport costs and reduce overall productivity. By reducing these land areas, these nations could potentially become far more prosperous.

The Case Against Natural Resources

While natural resources like fossil fuels have contributed to economic growth, they also bring significant environmental costs. Fossil fuels pollute air, water, and land, reducing their overall value. The best strategy is to transition to renewable resources such as sunlight and wind, which can generate electricity without the negative environmental impact. Knowledge-based solutions, such as aquaponics, rooftop agriculture, and indoor gardens, offer a sustainable future that minimizes reliance on natural resources.

Conclusion

In conclusion, the effective utilization of natural resources is to use them less. The smarter a nation becomes, the less it relies on natural resources for development. Historical and contemporary examples from countries like Singapore and Congo illustrate this point. The key to sustainable economic development lies in harnessing productive knowledge rather than relying solely on natural resources, which are often too abundant and lead to negative outcomes in terms of environmental and economic costs.