Natural Capital, Domestic Product and Proximate Causes of Economic Growth: Uruguay in the Long Run, 1870–2014

Silvana Sandonato,Henry Willebald

doi:10.3390/su10030715

Silvana Sandonato, Henry Willebald

Open Access

https://doi.org/10.3390/su10030715

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Journal: Sustainability	Publication Date: Mar 6, 2018
Citations: 4	License type: CC BY 4.0

Affiliation: Universidad de la República

Abstract

The debate on the relationship between natural resources abundance and economic growth is still open. Our contribution to this field combines a long-run perspective (1870–2014) with the study of a peripheral country in the world economy (Uruguay). The purpose is to build a historical series of natural capital and contrast its level and evolution with the level and growth of GDP, as well as the proximate causes of its economic growth (produced and human capital, exports and terms of trade). We show that natural capital has tended to decline in importance in the economy, while simultaneously becoming more diversified. Although this evolution is consistent in historical terms, we do not find a causal relationship between the abundance of natural resources and economic performance. Instead of a direct relationship, the proximate causes appear to have been important in explaining the evolution of natural capital when we consider three stages of economic growth: physical capital and terms of trade during the agro-exporter model; human capital and exports during the period of import substitution industrialization; and terms of trade from the 1970s afterwards. These factors cause natural capital but not the other way around, leading us to conclude that an abundance of natural capital is an endogenous process.

Highlights

We identify the concept of “natural resources” with those assets which originate from nature—land, forests, minerals—and can be exploited for economic purposes
The approach used in our natural capital estimation from 1870 to 2014 is based on the World Bank methodology presented in [100,101] (in the following, we present the first advances of the Master Thesis in Economic History of Silvana Sandonato titled: “Capital Natural y crecimiento económico en Uruguay en el largo plazo (1870–2014),” PHES-FCS-Universidad de la República, Uruguay; which will be defended in 2018)
The debate on the link between natural resources abundance and economic growth is still open. Our contribution to this field consider a long-run approach with the analysis of a periphery country of the world economy—Uruguay—that has three features that make it an interesting case: (i) the “internal” economy shows evidence of structural change but the exports have remained highly concentrated in primary products; (ii) it is, historically, a natural resources abundant economy intensively positioned in renewable resources; (iii) the availability of information makes it possible to compute using estimations of natural capital over a very long time frame

Summary

Introduction

We identify the concept of “natural resources” with those assets which originate from nature—land, forests, minerals—and can be exploited for economic purposes. Many Latin American, African and Asian countries possess large energy, mineral and forestry wealth and yet their inhabitants continue to experience low quality of life [2]. The literature named this puzzling phenomenon the “natural resource curse” [3], which refers to the paradox that economies endowed with abundant natural resources tend to experience deficient economic growth and worse development outcomes than economies with scarce natural resources. The resource curse thesis has focused, mainly, on non-renewable assets because such resources have the worst consequences on economic growth [4,5]

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