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Natural resource management and rural development

Rural regions have a strong advantage in the production of natural resources and in their first-stage processing. While this function is the main contribution of rural regions to national growth in the early stage of development, as the national economy evolves, natural resources play a smaller role. For rural regions specialising in natural resource production, how this process of shifting from a resource-based national economy to one that is more diversified is managed has important implications for the regions’ long-term economic development.

There is a danger for rural regions to be left behind in the development process if national governments see rural regions only as a source of wealth that can be extracted and used for national development policies. For example, Chile has used its considerable mineral wealth to make investments in modernising the urban economy faster than it could have without these natural resources. The important question for regions that host exhaustible resources, like minerals and fossil fuels, is what happens as depletion occurs? Even for renewable resources, such as fishing and forestry, which are in principle permanently available, there is the possibility that overuse can result in loss of the resources, as is common with fish stocks.

While natural resources are one form of capital that can support rural economic development, the fact that it is a form of capital that can be rapidly consumed makes it crucial that policy for rural regions use some of the proceeds from natural capital to make investments in rural people, infrastructure and institutions to provide new economic opportunities for these regions. This means that as the national economy expands and diversifies, some of the natural resource royalties that were initially used for national development objectives should be returned to the regions where the resources are extracted.

The arguments for this are simple. The national economy should no longer have to rely on these royalties since it has diversified and has a broader tax base. Second, over time, the rural region experiences higher costs from its resource function as the quality of the resource declines, waste materials and environmental damages increase, and the local economy becomes increasingly vulnerable due to specialisation. Returning a portion of the taxes applied to firms that produce natural resources allows the region to make investments that can improve economic and social conditions.

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