The Research On The Paradox Of Natural Resources Endowment And Economic Growth

It is controversial on the topic of the effect of natural resources endowment on economic growth. On one hand, people think that natural resources endowment is a blessing as a gift, and natural resources makes positive effect on economic growth, for that natural resources is the engine of the industrialization and economic development. The countries that realized industrialization are almost rich in natural resources in the early ages. On the other hand, people also find that the countries with abundant natural resources often have the problems like trade deterioration, economic structural imbalances, slow pace of growth, namely, the paradox of natural resources endowment and economic growth. People brought forward the "Resource Curse" hypothesis based on the observation of the phenomena. From the "Deteriorating Terms of Trade Theory", "Center-periphery Doctrine" to "Dutch Disease", from the lack of the investment in human capital, income inequality to rent-seeking, corruption and civil war, from the price fluctuations to the macro-economic policy blunders, all of which have explained the paradox of natural resources endowment and economic growth to a certain extent. However, we also find that the oil is a blessing in Norway but a curse in Venezuela, the diamond leads to the violent conflict in Sierra Leone, but seems very useful to the prosperity in Botswana. This shows that natural resources only provides potential possibility for economic development as one of the basic productive elements. Through further observations, we will also discover the countries that succeed in avoiding resource curse have high-quality institutions. Is natural resources endowment a blessing or a curse? Which factor mainly resulted in the paradox of natural resources endowment and economic growth? The research on this issue has strong theoretical significance. At the same time, it has great realistic meaning for avoiding resource curse and accelerating China's economic and social development.The paradox of natural resources endowment and economic growth is a global problem. From the deterioration of the terms of trade to the Dutch Disease, from the lack of the investment in human capital to the rent-seeking and corruption, all of which have proved the transmission mechanism of resource curse. But we believe different natural resources endowment led to different development path of the institutions, which determined different level of economic development. This is the key of the problem.We believe that natural resources endowment had a decisive impact on the development path of the institutions in the early period of institutions formation, especially in the colonies. The abundant natural resources would lead to the establishment of grabbing institutions. The low-quality institutions led to further economic growth slowdown, or even stagnation. It is difficult to avoid resource curse for these countries with abundant natural resources. Through the deep research in the inequal institutions and in the different economic growth ways of the New World, we found the climate and soil were suitable for the production of sugar cane and other high-price crops in West Indias and South America. The characteristics included wide range of scale economy and slaves. The fortune of South America was under the control of the elites, which caused many problems in South America. There are no such natural conditions as South American in the North American regions. There were more European immigrants in North American. It was easy to establish the equal institutions under the conditions of equal property right and equal statue. The socio-economic institutions are advantageous to stimulate economic growth. Precisely, the rate of the economic growth in the United States and Canada is much higher than the rate in Latin American countries in this point of view.At the same time, the natural resources endowment is harmful to the improvement of the quality of the institutions on the following three aspects: First of all, the abundant natural resources led to the bulk of exports, then tended to a closed development path, therefore blocked the imports of advanced concepts and advanced institutions. Secondly, the rich revenue from the natural resources led to the unwilling of the government's innovation motivity. Finally, the natural resource rents were controlled by the minority, which led to the widespread rent-seeking behavior and the bad statue of the whole income distribution.Once the institutions are established, they are steady. Then the influence of the change of natural resources endowment to these institutions will be weakened, and the quality of the institutions established will determine whether a country or a region will have the resource curse phenomena.When institutions are grabber friendly, they can protect vested interests, stifle innovation, make the entrepreneurs and other scarce resources transfer to non-productive activities, then natural resources endowment creates growth trap, and the gross income decreases. When institutions are producer friendly, they can guarantee the rule of law and contract enforcement, protect the innovation, attract entrepreneurs and other scarce resources to productive activities, promote making full use of the abundant natural resources, and develop the growth of the gross income. Even though those countries that have built high-quality institutions have abundant natural resources, they can't avoid resource curse; while those countries that could not avoid resource curse are ones with low-quality institutions. United States, Canada, Australia, Norway, Botswana and so on, succeeded in avoiding resource curse because the quality of the institutions in these countries were much higher than those such as Venezuela, Zambia, Nigeria, Ecuador.Abundant natural resources, coupled with low-quality institutions, will lead to lower level of economic output, even economic recession or stagnation. On the contrary, high-quality institutional arrangements can help a country or a region make full use of its natural resources endowment, and the abundant natural resources will accelerate the economic output, thereby, promote the economic growth. In other words, the loss of the institutions or weakening of the institutions is the essential cause that makes a country or a region get into resource curse.We can verify the existent of the threshold of the institutions through the empirical analysis of the data of the 93 countries and regions. In other words, a threshold value can be derived. If the institutions variable is lower than this threshold, there occurs resource curse. Namely, abundant natural resources can't promote economic growth, on the contrary block economic growth. If the institutions variable is higher than this threshold, resource curse will not occur. That means the more abundant natural resources there is in a country, the more rapidly economic development there is. Once again this proves that countries or regions with abundant natural resources can become either growth winners or growth losers, which lies in the different institutional quality.Per capita natural resources are relatively poor in China. On the national level, there is no phenomenon of resource curse. However, the distribution of natural resources is unbalanced, for there are vast coal, oil, natural gas and other energy resources in western region. But from the visual point of view, economic growth in western region is lagging far behind that in the eastern coastal provinces where there is poor natural resources. In fact, there are a lot of differences in institutions among the provinces, not only in the formal institutions such as property rights institutions, market institutions, opening institutions, but also in the informal institutions such as market senses, employment concepts, culture concepts. The low-quality institutions in the west part lead to the phenomena of resource curse.Through empirical analysis, we can get the threshold of institutions. The higher natural resources endowment is, the faster economic development there is in Shanghai, Guangdong, Zhejiang, Jiangsu, Fujian, Beijing, Tianjin, Shandong, Liaoning, Chongqing, Sichuan. Because their numerical values of the institutions are higher than the threshold. On the contrary, abundant natural resources will lead to resources curse in Hubei, Anhui, Hunan, Hebei, Jiangxi, Henan, Jilin, Guangxi, Hainan, Inner Mongolia, Heilongjiang, Shanxi, Yunnan, Xinjiang, Ningxia, Shaanxi, Guizhou, Gansu, Qinghai, Tibet.Because their numerical values of the institutions are lower than the threshold. Then how do we prevent the resource curse? We should seek changes in institutions in order to avoid resource curse. Some people have brought forward some measures such as comparative advantage theory, first of education theory, first of social capital theory and openness promoting development theory, but we believe that because the low-quality institutions make it get into resource curse, we must reform institutions to find solutions. Otherwise developing countries, especially the developing countries with abundant natural resources, can't make themselves developed.So we should create a competitive environment to encourage the production, control the behavior of rent-seeking, implement the political reforms, and establish an effective and transparent regulatory mechanisms to comprehensively improve institutional quality. At the same time, in view of the specific circumstances of China, we should accelerate the reform process of the institutions of ownership and property rights, push industrial restructure and optimization, and strengthen natural resources administration and institutions build, in order to avoid the occurrence of the phenomena of resource curse.