Natural Resources and Economic Growth: What Is the Connection?

This paper reviews the relationship between natural resources and economic growth, and stresses how natural capital tends to crowd out foreign capital, social capital, human capital, and physical capital, thereby impeding economic growth across countries and presumably also over time. Specifically, the paper presents empirical evidence that nations with abundant natural capital tend to have (a) less trade and foreign investment, (b) more corruption, (c) less education, and (d) less domestic investment than other nations that are less well endowed with, or less dependent on, natural resources. This matters for growth because empirical evidence also indicates that trade, honesty, education, and investment are all positively and significantly related to economic growth across countries.