The previous two chapters of Part II focused on the economic factors and conditions determining land conversion in developing countries. This chapter is concerned with the problem of freshwater availability and use, which was highlighted in Chapter 1 as an important “stylized fact” of the role of natural resources in economic development for many low- and middle-income economies.

The introductory chapter highlights the structural dependence of many low- and middle-income economies on natural resource exploitation. Chapter 2 reviews many theories that, on the whole, suggest that natural resource exploitation has been the main feature of economic development and trade in the developing world historically. These theories generally suggest that the exploitation of the natural resources of a country is, at the very least, an important first step in its economic development.

As discussed in Part I, the very minimum criterion for attaining sustainable development in a resource-rich economy is that this natural resource exploitation satisfies “weak sustainability” conditions. That is, the development path must ensure that, first, natural resources are managed efficiently so that any rents earned are maximized, and second, the rents resulting from the depletion of natural capital are invested into other productive assets in the economy.

The “stylized facts” reviewed in Chapter 1 suggest that the vast majority of low- and middle-income economies tend to be resource dependent, in terms of a high concentration of primary products to total exports, and that these economies appear to perform poorly. In addition, development in low- and middle-income countries is associated with land conversion and increased stress on freshwater resources, and a significant share of the rural population in developing economies is located in marginal agricultural areas.

This chapter, which begins Part III, centers on a third important aspect of natural resources and economic development in poor countries: namely, that many of the poor in low- and middle-income economies are located in rural areas and remain dependent on agricultural and other renewable resources for their livelihoods, as emphasized by the above quote from Partha Dasgupta. This has two important implications for an economic approach to improved resource management for sustainable development in poor countries. First, we need to understand better the linkages between rural poverty and resource degradation, especially how they might lead to poverty–environment traps in certain geographical areas.

Can frontier-based development be successful? The short answer to this question is: “Why not?” As we have discussed, since 1500, “frontier expansion” has been a major part of global economic development. It is characterized by a pattern of capital investment, technological innovation and social and economic institutions dependent on “opening up” new frontiers of land and natural resources once existing ones have been “closed” and exhausted. Most of this development has been incredibly successful, particularly during the Golden Age of Resource-Based Development (1870–1913).

Chapter 5 examined empirical evidence regarding the main factors behind land use change in developing countries, noting that many economic analyses of tropical deforestation and land conversion have emphasized the important role of institutional factors. However, such analyses are often unable to examine the influence of open access conditions and ill-defined property rights, as to date an adequate cross-country data set on property rights and land ownership conditions does not exist for developing economies.

Over the past three decades, a major change has occurred in economic thinking. No longer do we consider the economic process of producing goods and services and generating human welfare to be solely dependent on the accumulation of physical and human capital. An increasing number of economists now accept that there is a third form of “capital” or “economic asset” that is also crucial to the functioning of the economic system of production, consumption and overall welfare. This distinct category consists of the natural and environmental resource endowment available to an economy, which is often referred to as natural capital.

Chapter 1 ended with a key paradox concerning the role of natural resources in economic development: Why is it that, despite the importance of natural capital for sustainable economic development, increasing economic dependence on natural resource exploitation appears to be a hindrance to growth and development in the majority of low- and middle-income economies of the world? Of course, it is important to examine this paradox in light of the use of natural resources by today’s developing economies and how current economic theories represent this use. In fact, Chapters 3 and 4 will do precisely that.

As the title indicates, this book explores the contribution of natural resources to economic development in low- and middle-income countries. There has been increased interest in the application of natural resource economics in these countries, now that it has been recognized that the environment is not a “luxury” for economic development, but contains natural “capital” fundamental to growth and development in poorer economies.