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. This means that much of the export revenue generated by the natural resources goes to the government. Equally, in economies where these companies are not necessarily state owned, the government can still generate large amounts of revenue on tariffs paid by importers for the resources. These two aspects mean that the government does not have to tax its citizens, or if so only at a small rate. Whilst this may benefit the disposable income of the domestic population, it can mean that policymakers have less financial accountability to their citizens. 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.