Towards a new approach to natural resources and development: the role of learning, innovation and linkage dynamics

Abstract

It is a stylised fact in economics that natural resources are harmful for economic development. Still, one can find several examples of natural-resource-based development. This apparent paradox reflects an unsatisfactory conceptualisation of natural resources. This paper suggests a new evolutionary-institutional approach to studying natural resources and their role in economic development with focus on learning and linkage dynamics. The paper reviews the literature with a focus on the underlying perception of natural resources as the key for understanding its shortcomings. Most approaches perceive natural resources as finite and exogenous to the economic system. These assumptions constitute the pillars of the law of diminishing returns which inter alia states that natural resources cannot lead development. Others argue that natural resources are endogenous to the economy and can develop important dynamic linkages. The paper elaborates on the latter and suggests that in order to understand the role of natural resources in economic development, they must be understood as dynamic, and as being subject to processes of natural resource creation, extension and obsolescing that are characterised by learning and capability building.