How Do Natural Resources Affect Economic Development? (2023)

How Do Natural Resources Affect Economic Development? (1)

Natural resources are considered to be a very important aspect of a nation’s or region’s economy. But, are they also equally vital for the process of economic development?

“In Israel, a land lacking in natural resources, we learned to appreciate our greatest national advantage: our minds. Through creativity and innovation, we transformed barren deserts into flourishing fields and pioneered new frontiers in science and technology.”
Shimon Peres

The term economic development refers to the kind of advancement made by a particular economy, both qualitatively as well as quantitatively, in a given period of time. Economic growth in terms of rise in market productivity as well as in the overall GDP is an important aspect of economic development, alongside many others. But, the ultimate aim of development of any economy across the world is to ensure the economic and social well-being of the people. There are numerous players determining the economic development of a country or region, the most important of which, alongside the physical capital, is its human capital, or in simple terms, the manpower resources. Apart from these two, economists from across the globe have acknowledged the vital role that is played in the economic development by, what they term as the natural capital, or what we, in simple terms, may refer to as natural resources.

What Are Natural Resources?

Natural resources are those material and substances, which occur naturally in the environment. They are those resources that are readily and naturally available on our planet, and can be used in their natural, undisturbed form. Some of the common examples of natural resources include land, water, coal, wood, sunlight, and oil.

(Video) Economic Growth - Natural Resources

All these resources are distributed randomly across our planet, owing to which, every place has a set of its own natural resources, which aid in its economic development. Because these resources are randomly distributed, they are available in abundance in some places, whereas they are found in scarcity in some others. It is, therefore, important that people make proper and sustainable use of their natural resources so that they can also be preserved, to some extent, for posterity. Natural resources have been essentially classified into two types:

The non-renewable resources are those natural resources, which can be used only once. They are exhaustible resources, which tend to diminish in quantity, owing to their constant usage. It is, hence, important to use the non-renewable resources wisely so that we do not run out of them. Non-renewable resources include coal, natural gas, petroleum, uranium, etc.

How Do Natural Resources Affect Economic Development? (2)

The renewable resources are those natural resources, which can be naturally restored. While some of these resources are available in plenty everywhere and at all times, like wind, sunlight, etc., some other renewable resources, such as timber and water require time to be replenished. So, if these resources are used up at a faster pace than the time taken by nature to restore them, even they are prone to getting exhausted.

How Do Natural Resources Affect Economic Development? (3)

(Video) Importance of Natural Resources In Economic Development

Several economists of the world have observed that the availability of abundant natural resources, whether renewable or non-renewable, in a particular region, accelerates the economic development therein. However, it should be noted that the use and exploitation of the natural resources depends on the attitude of the people of a particular region, and hence, the above observation has also been seen to be reversed in some cases.

Impact of Natural Resources on Economic Development

Natural resources are available, in varying quantities, in all parts of the world. The natural availability of certain resources in a given region, makes it easier for the people to acquire and use them. Otherwise, a country, where a certain natural resource is not available, has to depend on other countries, in order to acquire it, owing to which the former has to invest a lot of monetary resources in the trade.

The effect that the availability of natural resources may or may not have on the economic development of a country, depends on various parameters. As economist, Sir William Arthur Lewis puts it, “Given the country’s resources, its rate of growth is determined by human behavior and human institutions: by such things as energy of mind, the attitude towards material things, willingness to save and invest productively or the freedom and flexibility of institutions.”

However, for the common people of a country to be aware of the value of natural resources, it is extremely vital that the political structures are strong enough. If a country is fortunate enough to have a good leadership, the attitude of the common masses can be mended in a way that they learn to use their natural resources wisely and in a sustainable manner. So, whether or not the country’s reserve of natural resources actually aids in its economic development is determined largely, by the quality of public response, rather than the amount of resources.

Having said this, the link between the availability of natural resources and overall economic development may not indeed be as strong as it is often perceived. After all, we do have examples of several countries, which have remarkably risen to development, despite having scarce amounts of natural resources, and even hostile environmental conditions. Japan is a classic example of this. On the other hand, we also have instances, wherein no remarkable progress has been made by a nation, in spite of having enormous reserves of natural resources. Take for example, the African countries of Congo, Angola, and Gabon. These countries have unparalleled reserves of natural resources, yet extreme poverty is what prevails amongst majority of their masses.

(Video) 262 Introduction to Natural Resource Economics - Lecture 2

The Developing Country Scenario

▣ It is important to note that in a developing economy, natural resources can provide a number of opportunities, in order to enhance the economic development.

▣ In an agrarian economy, for instance, natural resources, such as land, soil, forests, animals, fisheries, etc., may be extremely important.

▣ These not only maintain the livelihood of the people, but also provide them with subsistence.

▣ Therefore, it becomes very necessary to keep a check on the use of these resources, as even if some of them, like land may be renewable, the law of diminishing returns still applies.

The Developed Country Scenario

▣ Contrary to the developing countries, natural resources may not occupy a prominent place in the process of economic development of the developed countries.

(Video) Natural Resources and Economic Development

▣ Developed countries are technologically advanced, and hence, even if there is a scarcity of some natural resource, say cultivable land, they can still produce enormous amount of crop using sophisticated technology.

▣ Therefore, technology and capital overshadows the need for natural resources in the economic development of these countries.

▣ Owing to this, the law of diminishing returns rarely applies to the natural resources of the developed countries. As the economist, Sir Henry Roy Forbes Harrod has said, “I propose to discard the law of diminishing returns from land as a primary determinant in a progressive economy. … I discard it only because in our particular context it appears that its influence may be quantitatively unimportant.”

While natural resources may be considered as one of the factors aiding the process of economic development, it needs to be noted that their excessive exploitation and/or misuse, may also hinder the same. It is, therefore, essential that economies make optimum and judicious use of their natural resources. Though it is true that mineral industries have created many jobs throughout the world, it is also vital to take note of the environmental hazards and challenges that their excessive and unethical use may pose.

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(Video) natural resources effecting our economy


How can the natural resources be used for the economic development? ›

An abundance of natural resources should accelerate economic development because it increases exports so that more capital goods can be imported to build up the economy, and also because the natural resource rents (returns in excess of those required by an efficient producer) can be used to boost capital investment.

What is the role of natural resources on the economy? ›

The natural environment provides resources – such as water, land, plants, animals, ecosystems and minerals – that drive the economy and other human activities. The effective measurement of the extent of resource use is vital to ensuring sustainable development in line with the country's National Development Plan (NDP).

How does natural environment affect the economy? ›

Natural resources are essential inputs for production in many sectors, while production and consumption also lead to pollution and other pressures on the environment. Poor environmental quality in turn affects economic growth and wellbeing by lowering the quantity and quality of resources or due to health impacts, etc.

How can natural resources contribute to the development growth of our country? ›

An abundance of natural resources in a country means that development will come a lot easier to that country than for one where there isn't much natural resource available. There is a positive relationship between natural resources and economic development.

What are the effects of natural resources? ›

In short, raw material extraction and processing always impact on the environment, resulting as they do in soil degradation, water shortages, biodiversity loss, damage to ecosystem functions and global warming exacerbation.

What are the benefits of natural resources? ›

Our air, land, water, wildlife, plants and soil – our 'natural resources' - provide us with our basic needs, including food, energy, health and enjoyment. When cared for in the right way, they can help us to reduce flooding, improve air quality and supply materials for construction.

What does natural resources mean in economics? ›

Natural resources are natural assets (raw materials) occurring in nature that can be used for economic production or consumption.

How does natural environment affect development? ›

A healthy environment supplies the necessities of life, like water, food and air. It also provides resources for economic growth and the means to fight natural hazards. The well-being of developing countries is often linked to the state of the natural environment and the opportunities it offers.

What are the main factors affecting economic environment? ›

Macro factors include:
  • Employment/unemployment.
  • Income.
  • Inflation.
  • Interest rates.
  • Tax rates.
  • Currency exchange rate.
  • Saving rates.
  • Consumer confidence levels.

What is the relationship between environment and economic development? ›

Natural and environmental resources have three economic roles : waste disposal services, related to the environment's assimilative capacity; natural resource inputs into production; and directly consumed life support services and aesthetic amenities.

What is the role of natural resources in sustainable development? ›

The main aim of sustainable development is to provide resources for present generations without compromising the needs of future generations. The economy cannot be based on the use of non-renewable resources such as coal, petroleum, because these resources cannot be replenished.

Are natural resources good or bad for development? ›

Despite volatile commodity prices, natural resource rents thus seem to advance economic development. The negative indirect effect shows that, over the long term, natural resources undermine the development of institutions.

How do natural resources impact a society? ›

Natural resources are used to make food, fuel and raw materials for the production of goods. All of the food that people eat comes from plants or animals. Natural resources such as coal, natural gas and oil provide heat, light and power.

What are the causes and effects of natural resources? ›

What causes the depletion of our natural resources?
  • Overpopulation. ...
  • Overconsumption and waste. ...
  • Deforestation and the Destruction of Ecosystems leading to loss of biodiversity.
  • Mining of Minerals and Oil.
  • Technological and Industrial Development.
  • Erosion.
  • Pollution and Contamination of resources.

What are the 10 importance of natural resources? ›

Ans: The importance of natural resources are: (1) forest provides us with food, timber, fuel, and shelter, (2) air provide us with oxygen to breathe, (3) land is used for cultivation and growing food products, (4) sunlight gives us solar energy which is an important alternative source of energy, etc.

What are natural resources and its problems? ›

Almost all natural resources are under pressure due to the growing human population. Overexploitation of these resources often results. Due to overexploitation to support the ever-growing population, resources such as arable land, fresh water, fossil fuels, coral reefs, and wilderness forests are at record low levels.

What are examples of natural resources in economics? ›

Common examples of natural resources include air, sunlight, water, soil, stone, plants, animals and fossil fuels.

Is natural resources very important? ›

Three important natural resources are water, fossil fuels, like coal and petroleum, and forest and wildlife.

How do natural resources help your community livelihood? ›

Natural and locally available resources are properly utilized to increase both availability and options of livelihood throughout the year while conserving these natural resources through enhancement of their quality and quantity. Land, water, air and biodiversity are the most vital natural resources bestowed on Earth.

Is natural resources part of economics? ›

Within the context of economics, natural resources are materials and energy that occur naturally and are used in economic activities. Some examples of natural resources include wind, water, food, timber, and minerals. Natural resource economics focuses on the sustainable use of these resources.

How natural resources are important for business? ›

Your business may rely on nature for: raw materials like cotton, water, and crops. the quality and availability of your inputs and products - nature provides water purification, filtering of pollution from the air and seas, nutrients formation, and pollination.

Why do we need more and more natural resources? ›

Resources are necessary for human beings because of the following reasons: Resources when used as a raw material satisfy the needs and comforts of human beings. Natural resources are a source of agricultural activities which adds to the economic importance. They also provide employment opportunities.

What is an example of nature affecting development? ›

Some characteristics are biologically determined, such as eye color, hair color, and skin color. Other things, like life expectancy and height, have a strong biological component but are also influenced by environmental factors and lifestyle.

How nature plays a role in development? ›

Spending time in nature is essential for cognitive development. Nature play stimulates creativity and problem solving skills integral to executive function development. Children who play and spend time in nature have increased concentration and cognitive skills, including mitigation of ADHD/ADD symptoms.

How does environmental factors affect growth and development? ›

Environmental Influences on Child Development

These include the social, emotional, economic, and physical environment. The physical environment is the space and location in which the child grows, affecting their health, learning, and behavior.

What factors affect economic development? ›

Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology.

What are the three factors that influence economic growth? ›

There are three main factors that drive economic growth: Accumulation of capital stock. Increases in labor inputs, such as workers or hours worked. Technological advancement.

How does climate affect economic development? ›

Declines in productivity and production could decrease businesses' incentive to invest, particularly in a scenario in which physical capital is routinely damaged or destroyed due to the effects of extreme weather events to a point where further investment becomes unattractive.

How does climate affect economic growth and development? ›

We find that higher temperatures reduce the growth rate in poor countries, not simply the level of output. Since even small growth effects have large consequences over time, these growth effects – if they persist in the medium run – imply very large impacts of permanent temperature increases.

What are the 5 environmental factors that influence growth and development? ›

Child growth and development are affected by 4 major types of environmental factors: biological, physical, psychosocial, and familial.

Why natural resources are important to protect and maintain? ›

They are important for the cash economy, for creating energy, for providing shelter, for food and medicine, and for spiritual well being. By protecting and conserving natural resources we help to ensure that they are available for use not only today, but in the future as well.

What are the disadvantages of using natural resources? ›

  • Renewable resources are only available in certain parts of the world, eg sunny places.
  • Non renewable resources are scarce and will run out.
  • Non renewable resources cause pollution.
  • Renewable resources are expensive.
14 May 2014

Can a country develop without natural resources? ›

While many countries of the world have been able to develop their economy through natural resources, it is interesting to know that what some countries lack and still develop (natural resources), some countries possess them in abundance and have still remained poor over the decades.

How the different types of resources affect the development process? ›

The quantity and availability of natural resources affect the rate of economic growth. The discovery of more natural resources, such as oil or mineral deposits, will give a boost to the economy by increasing a country's production capacity.

How does natural resources affect quality of life? ›

Life would not exist without water; people, animals and land all need it to live and grow. Water can also be harnessed to be used as a source of energy. The land enables us to grow food so we don't starve, to grow trees to help filter the polltion and produce oxygen.

How does natural resources and environment affect human life? ›

We depend on food and water for survival and we need energy for many different purposes, from domestic cooking through to major industrial processes. Our clothes, transport, buildings, tools and all other items we use require many different resources for their production.

How natural and human resources contribute to the economy of the country? ›

Human resource helps directly to remove the economic backwardness and it increases labour efficiently and specialisation. The utilisation of human resources compensates the deficiency of natural resources have been able to achieve high economic and human development on the basis of human resources.

What are 5 ways we use natural resources? ›

Natural resources such as coal, natural gas and oil provide heat, light and power. Natural resources also are the raw materials for making products that we use everyday from our toothbrush and lunch box to our clothes, cars, televisions, computers and refrigerators.

In what four ways are natural resources useful to the development of Ghana? ›

These contribute towards fiscal revenue, income, job creation and poverty reduction. In Ghana, over the past years, extraction of natural resources such as cocoa, gold, and oil among others has helped transform Ghana's economic growth, with revenue contribution valued at 67% of exports and 15.4% of GDP.

Why are natural resources important to the development of industry? ›

Natural Resources are things that are found in nature that are valuable to humans. Natural Resources led to industrialization because natural resources provided the raw materials used to build machines and factories, as well as the raw materials to manufacture goods.

What are the factors which affect economic development? ›

Economists generally agree that economic development and growth are influenced by four factors: human resources, physical capital, natural resources and technology.

What are 3 ways that natural resources benefit a society? ›

Natural resources, both renewable and non-renewable, and ecosystem services are a part of the real wealth of nations. They are the natural capital out of which other forms of capital are made. They contribute towards fiscal revenue, income, and poverty reduction.

What are the advantages of natural resources? ›

Our air, land, water, wildlife, plants and soil – our 'natural resources' - provide us with our basic needs, including food, energy, health and enjoyment. When cared for in the right way, they can help us to reduce flooding, improve air quality and supply materials for construction.

How natural resources benefit the economy of Ghana? ›

The country is endowed with rich natural resources. Timber, gold, diamonds, bauxite, manganese, and oil contribute to making Ghana among the wealthier nations in West Africa. While its economy is one of the most successful in the region, it remains heavily dependent on international finance.

How did the natural resources of Africa impact its development? ›

Africa's natural resource economy contributes greatly to the continent's built environment, or human-made buildings and structures. The largest engineering projects and urban areas are directly linked to the production and trade of resources such as water, oil, and minerals.


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