Natural Resources and Regional Development: An Assessment of Dependency and Comparative Advantage Paradigms

Abstract

Abstract: The role of natural resources in regional development is the subject of a debate between dependency theorists, who argue that natural resources impede development, and comparative‐advantage theorists, who argue that resources can expedite development. This debate is assessed by a case study analysis of the impact of resource development on a regional economy. The case study uses a model to estimate the comparative advantage of the resource sector. The results show that natural resources have the potential to provide a significant comparative advantage relative to other economic sectors by virtue of generating resource rent, which is a surplus above normal returns to other factors of production. The case study also shows that there are considerable risks in resource‐led growth, including the propensity to dissipate rent and increase community instability by building surplus capacity. These risks are amenable to mitigation because they are largely the result of poor management of resource development. The case study demonstrates that the most productive analytical approach for understanding the role of natural resources in the development process is a synthetic approach, which combines the insights of the dependency and comparative‐advantage paradigms into a unified framework. It also demonstrates that the concept of resource rent, which has frequently been ignored in development theory, must be reintegrated into the unified framework to improve the understanding of the role of natural resources in the regional development process.