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Discuss Colliers view of the natural resource trap that countries that are rich in natural resources are less developed than those that are not so well endowed (20 marks)

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Introduction

Sam Larlham 13AMA F585: Development Economics Discuss Collier?s view of the ?natural resource trap? that countries that are rich in natural resources are less developed than those that are not so well endowed (20 marks) The natural resource trap is an idea proposed by Paul Collier, a development economist, in his book The Bottom Billion. The paradoxical suggestion that countries rich in natural resources are less developed than those that are not is one of great debate, where many variables must be considered. One factor that supports Collier?s view is to do with government revenue. In many developing economies, there is a high level of government planning and as such, many natural resource exporting companies are nationalised. ...read more.

Middle

This can cause issues with corruption, or mean that fiscal spending is not used in a way that derives maximum benefit for the country, for example by choosing not to improve the education and healthcare systems. This in turn can harm human development, as average life expectancy and mean years of schooling will be low. This can have economic consequences due to a reduced labour force and lower quality of labour respectively, therefore a lack of taxation suggests Collier?s view is correct. The second issue of the Natural Resource Trap is that of ?Dutch Disease?. High export revenues generated by natural resources lead to a current account and balance of payments surplus. The result of this is an appreciation in the country?s exchange rate, as there is a greater demand for the currency. ...read more.

Conclusion

This would cause a drop in real GDP, meaning that a country?s economic development suffers. This also supports Collier?s View. The previous two factors link to the third issue with the Natural Resource Trap, which is that of primary sector dependency. The fact that the government can generate large revenue from natural resources means that they are more likely to invest in this industry. This would cause natural resources? proportion of total export revenue to grow, as the market is expanding relative to others, meaning that the economy is more dependent on these commodities. This is then compounded by the lost international competitiveness in other sectors, which causes there share of total export revenue to fall. The problem with this is that natural resources a subject to a high level of price volatility ...read more.

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