There are those who claim that natural resources are bad for a country’s development. They find that the abundance of natural resources has been associated with a poor growth performance. This finding leads them to the conclusion – a wrong one in my view – that natural resources are hazardous to a country’s development. As I will be asserting over this presentation, natural resources are a blessing, but their abundance in a scenario of institutional and economic weakness may turn it into a curse. I will also comment that, in the case of Chile, solid bases have been in place to take advantage of the copper industry, very different from what occurred with nitrate in the early twentieth century. I will begin with a review of the international evidence on the relationship between natural resources and growth, to then focus on Chile’s specific case and the relationship between abundance in our mining resources and our development. Then I will talk briefly about the current economic scenario and how copper price fluctuations are no longer a source of instability, as used to be the case in the past or still is in some large commodity exporters. This is attributed to the significant advances we have made in our foreign exchange, fiscal, and monetary policies. The importance of this cannot be overemphasized, because said progress in macroeconomic policies has allowed us to implement unprecedented expansionary policies that should help Chile to overcome successfully the international crisis that hit the world at large in recent months.
As we all know, there was a “golden era” for nitrate between the years 1880 and 1930, where thanks to our resources and the external demand, Chile increased strongly its international trade, obtained large amounts of fiscal resources and was able to take a leap forward. Our economy’s nitrate dependence is visible in the proportion of fiscal resources that came from this sector (figure 4). This is the typical case where high earnings coming from natural resources create incentives to reduce the other taxes, placing the economy in great fiscal vulnerability, as it later occurred. Thus, when the golden era ended, the public external debt skyrocketed (from 28% of GDP in 1929 to 221% in 1932) and the economy suffered a severe contraction (figure 5), which was also fostered by the Great Depression. We can also see the negative effects of natural resource dependence if we compare the behaviors of nitrate, copper, and output. The fluctuations of nitrate output value had an enormous effect on GDP, with a correlation of 0.66 (figure 6). This is quite different nowadays, with a correlation between growth in copper output value and GDP of 0.05 (figure 7). Summing up, the review of the international evidence allow us to state that our abundant copper has been a positive contribution to the Chilean economic growth and welfare, which is reinforced by institutional and economic strengths that prevent the distortions that natural resource abundance could have on the economy.