Abstract
This paper addresses growing concerns that the global decline in natural capital hurts wellbeing in the long-run. We examine empirically how natural capital depletion affects sustainable development as measured by a positive change in the United Nation's Inclusive Wealth indicator. Drawing on panel data for 140 countries between 1990 and 2010, within-country analysis reveals that many countries convert their depleted natural capital sufficiently into human- and produced capital such that the comprehensive stock of wealth grows. However, some developed economies are struggling to harness their natural wealth for sustainable development. The policy implication is that there is no universally applicable recipe for the effective management of countries' natural resources. Countries that are poorly endowed with human- and produced capital, in particular, may have a window of opportunity in which natural capital depletion is temporarily able to foster rather than hamper sustainable development.
Highlights
The worldwide depletion of natural capital helped trigger wide spread concerns that societies do not manage their natural resources sustainably (Arrow et al, 2012)
New evidence shows that natural resource exploitation may foster human- or produced capital accumulation (Sun et al, 2019; Zalle 2019; Lashitew and Werker 2020; Ouoba 2020), which suggests natural resource-dependence need not be a curse for sustainable development
Our analysis reveals that the effect of natural capital utilization on sustainable development is dominated by the potential gains from natural capital depletion, which follow from diminishing returns to human- and produced capital
Summary
The worldwide depletion of natural capital helped trigger wide spread concerns that societies do not manage their natural resources sustainably (Arrow et al, 2012). What limited empirical work has been done finds that the shares of natural resource rents and exports as a percentage of GDP are negatively associated with wealth growth (Atkinson and Hamilton 2003; Neumayer 2004; Dietz et al, 2007; Hess 2010; Boos and Holm-Müller 2013; Forson et al, 2017; Koirala and Pradhan 2020) These studies suggest that undiversified economies experience lower income growth (Abdulahi et al, 2019; Perez and Claveria 2020; see Papyrakis 2017 for survey), and face a reduced capacity to develop sustainably. New evidence shows that natural resource exploitation may foster human- or produced capital accumulation (Sun et al, 2019; Zalle 2019; Lashitew and Werker 2020; Ouoba 2020), which suggests natural resource-dependence need not be a curse for sustainable development.
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