Question

1. Can natural resource endowments hurt growth and development?

​​​​​​​Resource-rich countries have lower domestic fuel prices, higher investment in R&D, higher capital stock, larger foreign exchange reserves and more inflows of FDI. They also have lower budget deficits and lower inflation (Polterovich et al). These are all good things forgrowth, but rarely do these countries develop in a sustainable way.

(a) Team 1: These countries should be like Norway, doing really well when compared tothe rest of the world; but they aren’t because unlike Norway they aren’t developingtheir human capital to move up the value chain. We should focus on better institutionsand human capital development in these resource rich countries.

(b) Team 2: Investment in resource rich countries might be high but there is no evidencethis money actually stays in the countries. When it does, it is frequently stolen bythe elites or contracts altered for their benefit. We want better institutions and directcash transfers of all profits to individual citizens.

Answer 1

Resource-rich countries face the 'resource curse,' leading to economic issues despite potential benefits from their resources. Improving human capital and institutions, and preventing elite corruption are pivotal steps towards sustainable development. Low to high-income countries have varied growth strategies, including investment in health, education, technology, and innovation.

Step-by-step explanation:

Can natural resource endowments hurt growth and development? Yes, despite the potential benefits such as lower domestic fuel prices, higher investment in R&D, and larger foreign exchange reserves, resource-rich countries often fail to develop sustainably. This phenomenon, known as the resource curse, can lead to authoritarianism, high rates of conflict, and low economic growth. Team 1 argues for focusing on better institutions and human capital development to emulate the success of countries like Norway. On the other hand, Team 2 highlights the leakage of financial resources abroad or into the hands of elites and suggests direct cash transfers to prevent this diversion. Improvements in standards of living in low-income countries often lack due to poor investments and heavy reliance on foreign aid. For healthy economic growth, these countries need to focus on health, education, and creating a stable macroeconomic and political environment to attract more foreign aid and investment. Middle-income countries aim for increases in physical capital and innovation, while high-income countries maintain their economies through innovation and technology.