In this essay I aim to show the true importance of natural resource to the economic growth of a country. I will be discussing Japans and Canada’s economic situation as well as comparing it to Saudi Arabia in relation to the availability of natural resources. Indicators such as GNP per capita, Literacy rates, and the countries exports and imports will be studied to help suggest if a natural resource base is fundamental to national economic development of a county.
Natural resources are a vital part in the development of the Worlds economy. There is lack of theory in terms of generalising about the relationship between resources and development. Japan is a good example. As explained Japan is a very rich economic country. Manufacturing is its strength but it has few natural resources. The countries successful economy is based on the export of high quality consumer goods developed with the latest technologies for example Toyota, Sony, Fujifilm and Panasonic are famous across the globe. One common pattern is for Japanese companies to import raw materials and then process them to make finished products, which are sold domestically or exported. In an often cited statement 1 (e.g. Cairns, 1994, p 782) Erich Zimmerman wrote “resources are not; they become.” Meaning that natural resources have no value until labour and capital is applied. Japan has one of the largest export based economies. Japan is 5th in the world for largest export of goods 2 $538.8 billion (2004 est). In reference to table 1 it can be seen that machinery is Japans biggest export.
Japan relies heavily on other countries for resources. Japan’s main agricultural product is rice, and most rice eaten in Japan is home-grown. Since Japan has little arable land compared to its population, it cannot grow enough wheat, soybeans, or other major crops to feed all its citizens. In fact, Japan has one of the lowest rates of food self-sufficiency of all industrialized countries. 5 Only 15% of Japans land is suitable for cultivation. This means it has to import a high percentage of its food from abroad. Japan is the largest market for US exports.
Japan has had to build its enormous industrial output and high standard of living on a very low natural resource base. Industry, the most important sector of the economy, is heavily dependent on imported raw materials and fuels. Mostly in terms of fossil fuels, particularly oil. It imports 90% of its oil. Due to the fact that In Japan they supply less that 1% of countries demand. Japan has more oil refining than oil production, and more oil consumption than oil refining. Looking at Table 2 it is notable that Japan is also very short on metal and mineral resources. With Machinery and Mineral fuels being one of the major imports. Japan’s imports of goods is to the value of $401.8 billion. Meaning Japan is making money from developing the imported primary material then processing these resources to export the manufactured goods.
Despite Japan having a very poor resource base it is the 3rd largest economy in the world after USA and China. It has huge amounts of economic power, and its average income levels and standard of living are among the highest in the world.6 Japan GNP per Capita is $29,400 (2004 est.) 99% of the population are literate. 7For 3 decades economic growth has been spectacular – 10% average in 1960’s, 5% in the 70’s and in 1980 4% growth. It is world leading in high technology, industry and has a strong work ethic. Industry is the most important sector of economy. Only 6% of the labour force engage in agriculture while 70% of the labour force, are in the service sector. Japan is among world’s largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods.
Japan is a prime example of that a natural resource base is not fundamental to a country’s development. It’s the ability to use and convert these natural resources for example iron ore into steal.
8’Blessed with natural resources’. From another perspective, the theory of development says that natural resource base is positive in the terms of the benefits for a country. For example Canada has a rich natural resource base. It’s an extremely affluent, high tech industrial society with high standards of living. When looking at indicators Canada can be seen as a well developed country. GNP per capita is at an impressive $31,500. This ranks above Japan. The literacy rate for the population is 98%. 9 It has been said that the country’s high income and high standard of living is that its export of natural resource financed the growth and diversification of its national economy in a very beneficial way (Sheppard & Barnes).
Iron ore, nickel, and zinc, copper, gold, lead, molybdenum, potash, diamonds, silver, fish, timber, wildlife, coal, petroleum, natural gas and hydropower are the main resources. These natural resources along with skilled labour and capital help to secure solid economical prospects.
However Canada does not just export these primary resources, it uses them to produce manufactured goods such as; motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, chemicals and fertilizers along with its natural resources such as timber.10Canada has a large amount of exports $315.6 billion. It is Ranked 10th in the world.It imports $256.1 billion. Canada mainly imports machinery and equipment, motor vehicles, crude oil and chemicals.11 Canada gains more capita from exporting than importing this is why it is an economically developed country with a GDP of $31,500- exports counting approximately for one third of this.
Its exporting of natural resources and manufactured goods, has created a high level of economic development within Canada. This helps show that a good natural resource base is important to economic growth.
It has been assumed that possessing natural resources benefits a country. However, experience has shown that for most developing countries possessing natural resources has not made them economically strong. Nowhere, is this more obvious than in the oil industry.12 This trend has been identified the ‘resource curse’ by Richard Auty (1995). For example Saudi Arabia is the largest exporter of oil in the world. It holds 25% of the world’s oil reserves. It makes more money from exporting petroleum and petroleum products than importing machinery, textiles, foodstuffs, motor vehicles and chemicals, 13its GDP is only $12 000- 40% of this and 90% of its oil earnings. 14Saudi Arabia holds a huge dependence on oil. In the past the demand for oil slowed and pulled oil prices down by more than a 1/3 causing Saudi Arabia economic uncertainty.
In comparison although Saudi Arabia has this natural resource base, it fails to develop. Countries like the USA and Canada use technology and capital to exploit the natural resources to produce manufactured goods. Then use trade and exchange to create a profit. It does not use natural resources alone. As stated before this is shown from Canada GNP per capita of $31,500 which is relatively high in comparison to Saudi Arabia with a GNP per capita of $12,000 who just uses solely depends on its exports of oil. Japan a country with resource deficiency has GNP per capita of $29,400 because it gains access through trade and exchange. This shows that economic resource base is not always fundamental to a countries development.
In conclusion it can be seen from the countries of Canada, Japan and Saudi Arabia that a natural resource base is not always fundamental to the country’s level of economic development. One of the key issues that have been identified is that it is the access to natural resources through trade and exchange that is important. The use of technology, labour and capital thereafter produces manufactured goods that can then be exported resulting in strong economic growth. Depending on a natural resource alone is not enough to sustain economic development. Sheppard and Barnes (2003) help to summarise to a certain degree that natural resource base is not always fundamental to a country’s level of economic growth – 15 ‘It appears that the location of resource deposits is almost irrelevant to where geographically those resources will be used. Not natural resources alone that facilitate growth its right technology, the right culture, and the right markets.’