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How Do Natural Resources Affect Economic Development?

How Do Natural Resources Affect Economic Development?
Natural resources are considered to be a very important aspect of a nation's or region's economy. But, are they also equally vital for the process of economic development?
Sucheta Pradhan
Last Updated: Mar 26, 2018
"In Israel, a land lacking in natural resources, we learned to appreciate our greatest national advantage: our minds. Through creativity and innovation, we transformed barren deserts into flourishing fields and pioneered new frontiers in science and technology."
Shimon Peres
The term economic development refers to the kind of advancement made by a particular economy, both qualitatively as well as quantitatively, in a given period of time. Economic growth in terms of rise in market productivity as well as in the overall GDP is an important aspect of economic development, alongside many others. But, the ultimate aim of development of any economy across the world is to ensure the economic and social well-being of the people. There are numerous players determining the economic development of a country or region, the most important of which, alongside the physical capital, is its human capital, or in simple terms, the manpower resources. Apart from these two, economists from across the globe have acknowledged the vital role that is played in the economic development by, what they term as the natural capital, or what we, in simple terms, may refer to as natural resources.
What Are Natural Resources?
Natural resources are those material and substances, which occur naturally in the environment. They are those resources that are readily and naturally available on our planet, and can be used in their natural, undisturbed form. Some of the common examples of natural resources include land, water, coal, wood, sunlight, and oil.
All these resources are distributed randomly across our planet, owing to which, every place has a set of its own natural resources, which aid in its economic development. Because these resources are randomly distributed, they are available in abundance in some places, whereas they are found in scarcity in some others. It is, therefore, important that people make proper and sustainable use of their natural resources so that they can also be preserved, to some extent, for posterity. Natural resources have been essentially classified into two types:
The non-renewable resources are those natural resources, which can be used only once. They are exhaustible resources, which tend to diminish in quantity, owing to their constant usage. It is, hence, important to use the non-renewable resources wisely so that we do not run out of them. Non-renewable resources include coal, natural gas, petroleum, uranium, etc.
Charcoal non-renewable resource
The renewable resources are those natural resources, which can be naturally restored. While some of these resources are available in plenty everywhere and at all times, like wind, sunlight, etc., some other renewable resources, such as timber and water require time to be replenished. So, if these resources are used up at a faster pace than the time taken by nature to restore them, even they are prone to getting exhausted.
Windmill renewable resource
Several economists of the world have observed that the availability of abundant natural resources, whether renewable or non-renewable, in a particular region, accelerates the economic development therein. However, it should be noted that the use and exploitation of the natural resources depends on the attitude of the people of a particular region, and hence, the above observation has also been seen to be reversed in some cases.
Impact of Natural Resources on Economic Development
Natural resources are available, in varying quantities, in all parts of the world. The natural availability of certain resources in a given region, makes it easier for the people to acquire and use them. Otherwise, a country, where a certain natural resource is not available, has to depend on other countries, in order to acquire it, owing to which the former has to invest a lot of monetary resources in the trade.
The effect that the availability of natural resources may or may not have on the economic development of a country, depends on various parameters. As economist, Sir William Arthur Lewis puts it, "Given the country's resources, its rate of growth is determined by human behavior and human institutions: by such things as energy of mind, the attitude towards material things, willingness to save and invest productively or the freedom and flexibility of institutions."
However, for the common people of a country to be aware of the value of natural resources, it is extremely vital that the political structures are strong enough. If a country is fortunate enough to have a good leadership, the attitude of the common masses can be mended in a way that they learn to use their natural resources wisely and in a sustainable manner. So, whether or not the country's reserve of natural resources actually aids in its economic development is determined largely, by the quality of public response, rather than the amount of resources.

Having said this, the link between the availability of natural resources and overall economic development may not indeed be as strong as it is often perceived. After all, we do have examples of several countries, which have remarkably risen to development, despite having scarce amounts of natural resources, and even hostile environmental conditions. Japan is a classic example of this. On the other hand, we also have instances, wherein no remarkable progress has been made by a nation, in spite of having enormous reserves of natural resources. Take for example, the African countries of Congo, Angola, and Gabon. These countries have unparalleled reserves of natural resources, yet extreme poverty is what prevails amongst majority of their masses.
The Developing Country Scenario
▣ It is important to note that in a developing economy, natural resources can provide a number of opportunities, in order to enhance the economic development.

▣ In an agrarian economy, for instance, natural resources, such as land, soil, forests, animals, fisheries, etc., may be extremely important.

▣ These not only maintain the livelihood of the people, but also provide them with subsistence.
▣ Therefore, it becomes very necessary to keep a check on the use of these resources, as even if some of them, like land may be renewable, the law of diminishing returns still applies.
The Developed Country Scenario
▣ Contrary to the developing countries, natural resources may not occupy a prominent place in the process of economic development of the developed countries.

▣ Developed countries are technologically advanced, and hence, even if there is a scarcity of some natural resource, say cultivable land, they can still produce enormous amount of crop using sophisticated technology.
▣ Therefore, technology and capital overshadows the need for natural resources in the economic development of these countries.

▣ Owing to this, the law of diminishing returns rarely applies to the natural resources of the developed countries. As the economist, Sir Henry Roy Forbes Harrod has said, "I propose to discard the law of diminishing returns from land as a primary determinant in a progressive economy. ... I discard it only because in our particular context it appears that its influence may be quantitatively unimportant."
While natural resources may be considered as one of the factors aiding the process of economic development, it needs to be noted that their excessive exploitation and/or misuse, may also hinder the same. It is, therefore, essential that economies make optimum and judicious use of their natural resources. Though it is true that mineral industries have created many jobs throughout the world, it is also vital to take note of the environmental hazards and challenges that their excessive and unethical use may pose.