Development and Growth in Mineral-Rich Countries (Draft)

The paper analyses some of the several ways in which mineral rents and their management influence economic growth and other determinants of growth as well as some of the reasons why many mineral-rich countries have not managed very well to divert their resource rents to furthering economic and social development – that is, why natural capital tends to crowd out human, social, financial and real capital.
The empirical results show that the natural capital share makes an economically as well as statistically significant contribution to economic growth. In sum, the results suggest that diversification of risk encourages growth through several different channels. Economic diversification is good for growth because it directs economic activity away from excessive reliance on primary production, thus facilitating the transfer of labour from low-paying jobs in low-skill-intensive farming or mining to more lucrative jobs in more high-skill-intensive occupations in manufacturing and services. Political diversification encourages growth in a similar manner by redistributing political power from narrowly based ruling elites to the people, thus in many cases replacing an extended monopoly of often ill-gotten power by democracy and pluralism. The essence of the argument is the same in both cases: diversity is good for growth.

This paper was prepared for the UNRISD project on Social Policy in Mineral-Rich Countries.

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