There is however an economic explanation, that does not insult the people, governments, religion or culture of natural resource rich developing nations. If a country has natural resources this raises wages without increasing the economic sophistication of the country. The education, work experience, skills, and training of the people may still be weak. The roads, communications, electricity generation and distribution may still be primitive and yet the wages are high. So industry moves to those nations that have a similar level of sophistication and infrastructure but do not have natural resources and therefore have cheaper labor.
As the economic history of Japan, South Korea, Taiwan, Hong Kong, Singapore, and now China illustrates, the country with the fewest natural resources per person can have an advantage in attracting industry.
This is particularly true of labor intensive, light industry. When you have very few natural resources, labor intensive light industry is your only solution. The great advantage of this is that labor intensive, light industry also happens to be the secret to rapid growth. (I have a web page on why, light industry is so important to rapid growth.)
With natural resources the nation produces and exports the natural resource, the natural resource earns foreign exchange and prevents the country from falling into the direst poverty. However the natural resources are often a dead end. They do not lead to anything. Year after year you simply produce and export oil, coffee, sugar, or what ever.
First, the nation maybe depleting its natural resource. This may mean it has progressively less to export, or it is progressively more expensive to produce the product. For example, the easily mined ores are exhausted and the mines have to go deeper, or the high grade ore is exhausted and low grade ores that are harder to process must be used.
Second, even if the resource is completely renewable, rising population means there is less per person as the population rises.
Third, natural resource prices have tended to fall over time. There was a period in which that trend was reversed recently. Natural resources rose because of the rapid growth of so many developing nations, particularly China. In fact the rising prices allowed many poor natural resource exporters to grow rapidly. The economic slump, and other factors has, perhaps temporarily, sent natural resource prices down again. But before the recent rise and fall in natural resource prices there was a long run downward trend in natural resource prices, and that was a major factor in the slow economic development of natural resource exporting countries.
Developing nations and developed nations tend to produce different goods. Consumer goods are frequently produced in poor, developing countries, while the most developed countries concentrate on more expensive capital goods. Capital goods are the goods that you use at work to produce goods and services.
Note that point about goods and services. Many people may think of capital goods as simply factory equipment. The rich, developed country produces sewing machines and exports them to the poor, developing country. The developing nation pays for the machines by exporting some of the underwear back to the developed nation. However, capital goods include many goods that are not used in factories, or export industries. For example, the developing country will frequently import equipment for its hospitals, which provide services for its own people and do not earn money from abroad. This is still capital equipment even though it is not used in a factory and produces little or nothing for export.
The United States never had an extended period of rapid growth like Japan, South Korea, Taiwan, Hong Kong, Singapore, or China. Many other developing nations have also had extended periods of growth far above the two percent per capita growth that has been typical of American economic history. The United States started out rich, largely because it had natural resources. Furthermore, the United States started its development earlier than most other nations. It grew slowly, as mentioned above typically at about 2% a year. Similar stories can be told about the development of Canada, Australia, and New Zealand.
Of course, China's rapid growth is also creating enormous demand for natural resources which has allowed many poor nations to achieve high growth without making the transition to industry.
The poorer nations have done well in recent years, far better than the rich nations. We can expect this to continue as we see the relative "rise of the West" is replaced by the relative "rise of the rest."
Here is an index to my other pages on economics, and a short review of my qualifications in this field.
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Last updated May 19, 2015
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