ASSIGNMENT

Assignment

Assignment

Outline

Recent research suggests three worrying trends with regard to the role of natural resources in long-term economic development in Latin America. First, natural-resource commodity booms in the region appear to be accompanied by declining GDP per capita. This may be the result of a potential “Dutch disease” effect; i.e., the impact of the “boom” is to divert economic resources from more innovative, manufacturing sectors to less innovative, primary sectors. Second, rapid land use changes are occurring in Latin America, characterized mainly by the conversion of tropical forests and other natural habitat to agriculture. Empirical evidence suggests however, that over the long run agricultural land expansion may be correlated with lower, rather than higher, levels of GDP per capita. Finally, excessive exploitation of land and natural resources across the region is being promoted by policies that distort land and resource markets, ineffective property rights and the failure to target policies to improve the efficient and sustainable management of natural resources.

This paper explores the economic determinants of these three key trends concerning agricultural land expansion, resource booms and growth in Latin America. Specifically, the paper focuses on recent empirical and theoretical work that addresses the following questions:

--How much does Industrial growth depend on Agricultural growth in the early stages of economic development?

--What are the main factors determining long-run agricultural land expansion in Latin America compared to other tropical regions?

--Given the importance of natural resource-based sectors for most economies in Latin America, what has been the impact of price-induced “resource booms” on economic growth in the region?

--Is there also an inherent “boom and bust” pattern of economic development associated with agricultural land expansion, and if so, do economic policies in Latin America exacerbate this problem?

Research Context

The context of this research is related to literature review. The discussion of the previous section suggests that the major cause of forest loss in developing countries is conversion to agriculture. Thus a crosscountry analysis of agricultural land expansion should also provide insights into the factors influencing tropical deforestation. Equally, previous studies of tropical deforestation may be able to suggest some of the possible effects of growth, income per capita and other macroeconomic factors on agricultural land expansion in developing regions, including Latin America. Four distinct analytical frameworks have been proposed in the economics literature for motivating crosscountry estimations of the causes of agricultural land conversion and tropical deforestation: the environmental “Kuznets” curve hypothesis, competing land use models, forest land conversion models, and institutional models ([Barbier and Burgess, 2001]). As the following brief review indicates, these analytical frameworks enable us to focus on certain key economic factors that may determine tropical agricultural land expansion and to choose the appropriate variables to include in our crosscountry regression., 2

The environmental Kuznets curve (EKC) hypothesis states that an environmental “bad” first increases, but eventually falls, as the per capita income of a country rises. There are a number of recent theoretical models explaining why such an inverted-U relationship between income and environmental “bads” might hold ...