Natural Resources

Green National Accounting (1) corrects one of the flaws in conventional national accounting, which is ignoring the important role of nature as a source of inputs into production processes.

In some sectors these environmental inputs are very important (e.g. forestry, farming and fishing), while in other sectors they play a minimal role (e.g. banking, commerce and education). In each sector they interact with the two other conventional production factors, labor and capital, to produce the total GDP for the sector, but the proportions are different for each sector (see Figure 1 for the sectors with a significant environmental component):

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Everybody knows Aesop’s fable about the farmer with the goose laying golden eggs: Day after day, the lucky farmer awoke to rush to the nest and find another golden egg, growing richer by the day. But with his increasing wealth came increasing greed and impatience, and unable to wait, the farmer decided to kill the goose and get all the eggs at once. But when he opened the goose, he found it empty, with no eggs and no way to get any more. He killed the very asset that produced his wealth, while he should have nurtured and nourished it.

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China is the fifth most forest rich country on the planet with more than 200 million hectares of forest. This is about 4 times more than Bolivia, which is the 15th country in the World in terms of forest extension (see Figure 1). 

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For many years I thought that the reason why natural resource abundance could turn into a curse was that people and governments reacted in an irrational and counter-productive way when confronted with new natural resource wealth. That seemed logical because it didn’t seem possible that additional money distributed fairly and invested wisely could do any harm.

So I was as perplexed and frustrated as everybody else when confronted with my own research results(1). Using a Computable General Equilibrium Model of the Bolivian economy we found that the current natural gas boom is likely not only to increase inequality, as might be expected, but also to increase poverty.

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It was recently shown in an academic paper (1) that the natural gas boom in Bolivia is likely not only to increase inequality but also to increase poverty.

How can this be true? How can windfall revenues of $700 million per year, received by a clearly pro-poor government, increase poverty???

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