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Resources and Development in an economy

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Introduction

Resources and Development a) Resources influence the structure and progress of an economy. If something is considered a resource it is potentially of economic benefit. However there are three differing types of resources, and it is the relative abundance of all these that dictates the economic structure. It is debatable whether the presence of one resource, e.g. Coal (a natural resource), leads in itself to economic sustainability and strength. There are human, capital and natural resources. Human resources represent the quality and quantity of the workforce and is influenced by factors such as education and demographics. Capital resources come in the form of accumulated wealth in assets such as industry or infrastructure. Natural resources, such as oil, coal or timber, are primary materials which are of utility to man, which man has the willingness (i.e. it will either be of use in other industrial processes or will gain a profit), and ability to exploit. These three factors combine to provide the backbone to an economy, although they often rely on one another, especially the industries on the workforce, to function properly. Natural resources are arguably the 'kick off' necessity of the other two, and is more complex as there are many types of natural resource, both infinite such as timber, and finite such as crude oil. There is therefore the issue of decision-making regarding sustainability, and the appropriateness of using a particular resource for a particular purpose, when a suitable replacement is available, and this often alters which natural materials are regarded as resources. ...read more.

Middle

have relied on and invested in human and capital resources to become more economically developed. Economic development without natural resources has been made more possible through modern technology. Iceland is an exporter of aluminium, despite having no bauxite reserves whatsoever; it buys bauxite from Australia, and modern transport has made this trade possible and efficient, and it is electrolysed into Aluminium using renewable hydroelectric and geothermal electricity, an otherwise extremely costly process for electricity. Iceland therefore has a successful secondary industry. Perhaps the existence of a relationship between natural resources and economic development is outdated due to modern technology. There are obviously lots of less economically developed countries with few natural resources, so it seems as if all four combinations of these two factors are actually quite common. However a resource-curse theory regarding the effect of natural resources on an economy arose in the late 20th century and is a viable argument on the subject, and applies to more modern scenarios where the effects of the 'technology revolution' have in the most part, already occurred. Since the 1960s the GDPs of resource-poor countries have grown significantly faster than those of resource-abundant countries. Since 1985 countries rich in natural resources have undergone an approx. 2.5% increase in their GDPs, whilst resource-poor countries have undergone an approx. 4.5% increase in their GDPs. The resource curse accounts for this phenomenon, and is a downward spiral that natural resource rich countries, such as Uruguay, have undergone and are undergoing. ...read more.

Conclusion

In the case of a country such as Brazil, money spent on the reliance of future income predictions has often proved to be too much, increasing government debt, and causing the removal of capital from other sectors, such as potential infrastructure and investment schemes, to make up the expenditure/income prediction deficit, and the economy develops more slowly as a result. Brazil has actually become less economically developed since 1985. This is another aspect of the presence of natural resources being a 'curse; on a nation. However it cannot be correct to conclude that the presence of natural resources cannot benefit an economy. If this was true, it would be better if primary exporting countries did not export at all. The resource-curse theory depends on errors from the ruling forces in a country, such as the neglect of investment, and therefore leaves the economy vulnerable to market changes, rather than flexible and durable, which it would be if money was spent on diversifying industry and improving other human/capital resources. There is increasingly little correlation between natural resources and the strength of an economy, as other factors and resources can be used to create economic wealth. However Countries such as Nigeria could take a similar route to economic development as the USA or UK if money from oil and other export revenues are spent on the development of other economy-contributing factors, such as improving capital and human resources, and the pitfalls of the resource-curse theory are avoided. ...read more.

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