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Natural Resources and Development Strategy after the Crisis

Otaviano Canuto's picture

by Milan Brahmbhatt and Otaviano Canuto

Recent events have rekindled interest in the role of primary commodities in development. Was the boom in commodity prices from around 2003 through 2008 just a cyclical event, or does it suggest that prices have entered on a period of secular strength, driven by factors such as demand in big, fast-growing de-veloping countries like China? It is notable that, while commodity prices fell sharply from their peak in 2008 with the onset of the global recession, they generally remained much higher than previous recession lows, often as high as in 2005–07, a period of robust world growth. Furthermore, prices have also rebounded smartly over the course of 2009 (Figures 1 and 2).

If a period of sustained commodity strength is imminent, what are the implications for development policies? Development economists have long debated the problems associated with the traditionally high specialization in production and export of primary commodities of most developing countries. Many argue that dependence on primary commodities has proved to be a poisoned chalice or curse for development, which, given this view, necessarily entails structural change and rapid industrialization. Others, however, suggest that sustained high commodity prices could reduce the relevance of an industrialization-focused development strategy for commodity-dependent, low-income countries (LICs).1 In this note we briefly review four questions: How dependent are developing countries on primary commodity exports? What is the outlook for primary commodity prices? Is there a natural resource “curse” (or blessing)? What policies can help poor countries best manage commodity resources for long-run development?

To read the rest of the note written by Milan Brahmbhatt and Otaviano Canuto, please visit the Economic Premise Website.

 

1. See, for example, Oxford Analytica International, 2009, “Commodities Force Re-think on Growth,” August 18.

Comments

Otaviano writes “Many argue that dependence on primary commodities has proved to be a poisoned chalice or curse for development” But some of us argue that the most poisonous element of that chalice, the true development cyanide, is when the income from the primary commodities turns into an excessive accumulation of power in the hands of any Central Government… making it therefore independently wealthy and causing it to see the citizens mostly as a nuisance. My thumb rule is that when a government receives more than four percent of GDP in revenues which have not passed through any taxpayer´s pocket, it becomes de facto a communist state. The sad cycle of resource rich nations with revenues centralized in the government has them suffering from the arrogance of their leaders when the prices of the commodity are high and of the lack of resources when the prices are low. Therefore it would be very interesting to see in a study like the one referred to herein more references on the significance on who decides on the use of the revenues generated by the natural resources.

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