Natural Resources as a Constraint on Global Growth

Historically, the availability of natural resources was a major constraint to economic progress and population growth, usually solved by people moving to other places. The Industrial Revolution removed that constraint and Nature disappeared from theories of economic growth. The issue reappeared in the early 70s, especially after the first oil shock. This chapter deals first with some distinct features of natural resources (heterogeneity, externalities, limited availability) that must be accounted for when analyzing their role in the economy. In what follows signals of scarcity, as reflected by prices, are compared with the use of exhaustible resources, concluding that, so far, there is little evidence that their availability has been a major restriction on economic growth. This, despite exponential growth of their use and consumption. Whenever there are prolonged price spikes, innovation coupled with investments have relaxed potential constraints. However, this works well only in cases in which prices reflect scarcity, something common with provisioning services, but absent in many ecosystem services that could eventually cause severe degradation for some critical variables for the economy, such as food production.