Introduction
Energy resources define the maximum energy production capacity. The resources are broadly classified into renewable and non-renewable resources. The former comprises resources that can never be depleted such as solar, wind, water, wave, tidal, geothermal, and biological energy resources, while the latter encompasses resources that eventually run out such as fossil and nuclear fuels, including uranium, coal, and natural gas. Renewable and non-renewable energy resources are a critical player in economic development. Their immeasurable impact on economic development comes with both positive and negative effects. For instance, most researchers have associated the presence of energy resources with industrial development, infrastructural development, job creation, and increased agricultural production, which all culminate in poverty reduction and economic stability. A close examination of the causal relationship between energy and economic development specifically backs up this claim. Conversely, supporters of the paradox of plenty have associated the abundance of energy resources with the poor economic development and a host of economic woes that plague developing countries (Carbonnier and Grinevald 2011, pp. 3-20). In particular, instead of boosting the economies of their major producers, especially in the Middle East and West Africa, oil and natural gas have resulted in conflicts and exacerbated corruption in a manner that suppresses economic development. Arguably, the abundance of energy resources is both a curse and a blessing with respect to economic development depending on how the resources are managed and governed. In this discussion, it is important to note that energy resources and energy are used interchangeably given that the latter cannot exist without the former, and the effects of the latter originate from the existence of energy resources.
The Causal Relationship between Energy and Economic Growth
In light of the mixed effects of abundant energy resources on the economic development of various nations across the globe, researchers have embarked on examining the causal relationship between energy and economic development. The subject has attracted considerable attention and formed an epicentre of most debates over time. For instance, Ozturk (2010, pp.340-349) and Payne (2010, pp.723-731) conducted parallel research studies, which confirmed the link between economic output and economic consumption. It is also true to assert that energy resources are linked to economic input. However, it is important to note that other studies have drawn divergent results when it comes to causality despite the presence of the link. That is, while there is a relationship between energy resources and economic growth, it is suspected that the causation could be divergent (Costantini and Martini 2010, pp.591-603). For instance, the efficiency of energy results in the reduced costs of production, which is a major factor in increased productivity and the ultimate economic growth. Similarly, economic development is likely to contribute to the rise in the share of sectors that are less energy intensive such as the financial sector, hence leading to more monitored energy productivity in any particular economy.
Economy Watch (2010) asserts that energy and its resources are a primary input and driver of numerous economic activities. In this respect, economists have identified two trends that they project to lay emphasis on the contribution of energy resources on the economic growth. Firstly, the consumption of energy and the exploitation of the existing resources have decoupled from economic development in the immediate past, implying that each unit of energy resulted in the creation of GDP. This statement describes the economic concept of energy productivity- the GDP per consumed unit of energy. Bhattacharyya (2011) observes that energy productivity continues to increase even in the countries that are short of resources. The undergirding justification for such an observation is pegged on the ongoing shift from energy-dependent industries to the service industry. Secondly, the prices of energy have been on an alarming upward ascent in the past decade, with the rapid increase paving the way for recessions (Field 2011). Energy production through the discovery of more energy resources has also increased, especially oil and natural gas. The implication is that such economies have largely developed and this is attributed to the energy resources as well as the resultant energy they use as input. In conclusion, the efficient management of energy resources and exploitation of energy is a recipe for steadier and possibly increased economic development (Bouton et al. 2010). In digression, measures of the efficiency of governance of energy and the resources may increase a country’s financial savings through the introduction of cost-efficiency in emission reduction. The resulting savings can be injected in other sectors of the economy, thus alleviating a country’s economic burden.
Energy Resources and Urban Revolution
The establishment of the causal relationship between energy and economic growth is pertinent in understanding how energy resources and the resultant energy affect economic development. The set precedence facilitates an in-depth comprehension of the specific positive and negative effects of energy resources on economic development. One major impact of energy resources on the economy has everything to do with urban revolution. According to Willis (2012), energy resources have shaped the current cities and urban centres over time. For instance, the author notes that before the discovery and development of fossil fuels, the city of London was a thin and long thread of settlement on both sides of River Thames. However, as more sources of energy were discovered, the shape of the city also changed coupled with increased human activity. The invention of steam power increased economic development and improved transport infrastructure, making development spread out along the routes of the trains. It is noteworthy that energy resources led to the development of railway suburbs around the train stations, albeit indirectly. The discovery of oil and the invention of the internal-combustion engine changed the narrative even further (Stern and Kander 2010). The city saw human activities increase, and so were the settlements and the eventual economic boost. In this light, energy resources shape the societal economic standing through direct and indirect contributions to the GDP (Stern and Kander 2010; Willis 2012).
The urban revolution comes with the development of a host of numerous other aspects of economic growth. One such aspect is job creation. This is because the more the energy resources and abundance of energy that characterise a given region, the higher the level of job creation (Stern 2010). Employment and unemployment levels define economic development, whereby low rates of employment are an indication of a stable and competitive economy, and vice versa. Thus, the fact that energy resources play a major role in job creation implies that they support economic stability. Stern (2010) classifies jobs related to energy and energy resources into three categories, namely direct, indirect, and induced jobs. Direct jobs are those that concern people contracted by corporations within the sector to process energy for the consumers. On the other hand, indirect jobs emanate from opportunities featuring firms that supply the energy sector with services and commodities. Finally, induced jobs emanate from salaries that workers in the aforementioned two groups receive. The two groups directly or indirectly create jobs through demand for services and goods, thus increasing the demand for supplies and employment in the industries that are not associated with energy resources or the energy industry. Energy resources create an industry that features intricate supply chains and huge profits, which make induced and indirect jobs a central part of the industry’s economic contribution (Tverberg 2012). Accordingly, the industry is projected to have a higher employment multiplier effect (Carbonnier and Grinevald 2011). A typical illustration of the pivotal role that energy resources play in job creation includes the cases of Oklahoma and North Dakota states in the U.S.A. The two states have a lower employment rate that stands at 5.3% and 3.2% respectively in comparison with that of the entire nation, which is approximated 9%. It is worth noting that the respective states have large reserves of oil and gas resources, and North Dakota is projected to have the lowest rate of employment of all the states in the country (Field 2011). Additionally, North Dakota is projected to have a fiscal surplus that avails funds for several other sectors of the economy. This illustration reveals that the presence of energy resources is a complete blessing for the economy of any region.
Possible Negative Impacts of Energy Resources on the Economy
While the abundance of energy resources may be a blessing, it could also be a curse, especially for developing countries. Some researchers and economists argue that energy resources, at times, affect economic development negatively. Consider the case of Equatorial Guinea. In 1996, large deposits of oil were discovered in the country with high prospects of prosperity for the third world African country. As expected, the country grew rapidly ascending to the third position in the oil export ranks in the Sub-Saharan Africa. Within three years, Equatorial Guinea had its per capita income exceed USD 20, 000, launching gracefully into the division of the high-income economies. Even then, Equatorial Guinea still has a greater portion of its population living below the poverty line (USD 2/day) (Acemoglu and Robinson 2012). Similarly, infant mortality rate ranks top in Africa for Equatorial Guinea, with a life expectancy of as low as 50 years. In this case, the discovery of energy resources does not seem to have had any significant impacts on the country’s economy. Acemoglu and Robinson (2012) assert that many energy resource-endowed nations generally experience a slower rate of economic growth compared to those that have less energy resources. Countries with large oil and natural gas reservoirs such as South Sudan and the Middle East are in constant conflict featuring high levels of armed violence in the fight for a piece of the resources. The incessant conflicts create a situation where the countries jump into a defensive mode. Therefore, most of the proceeds of the energy resources are channelled into militarising the country instead of economic development, thus the economy is suffocated, leaving the countries with little to show for the large energy resources at their disposal (Herberg 2014).
While conflict is just one of the several explanations put forward to explain the resource curse, the real economic challenge comprises the adoption of relevant policies that would address the popular ‘Dutch disease,’ which results in zero economic diversification due to currency appreciation. Many energy resource-endowed countries such as the DRC, Turkmenistan, Nigeria, and Zambia are currently exhibiting economic symptoms of the resource curse. According to Bhattacharya (2011), the curse is inevitable, and this calls for proper energy governance if any significant economic development is to be realised. In most of these countries, the non-renewable nature of most of the energy resources calls for the negotiation of deals that will help generate revenues long after the depletion of the energy resources (Ozturk 2010, pp.340-349). It is often challenging to find common ground where the allocation of the revenues from the energy resources satiates the political needs and support significant economic development. Among the available options is the redistribution of the revenues to the citizens through lower taxes or dividends, as is the case of Alaska, or investment in the human or physical capital as is the case of Malaysia (Herberg 2014). Overall, it is projected that the resource-curse is always a function of the ill-suited energy governance system that is unable to address the individual concerns.
Conclusion
Energy resources play a central role in economic development. Energy particularly drives all the sectors of the economy, making economic development completely reliant on it. Production is not only a function of capital and labour, but also energy. A critical examination reveals that energy resources produce capital, energy, and labour as already discussed, thereby making them an inalienable player in production. Infrastructural development, urban revolution, and job creation are some aspects of economic development that enjoy support from the presence of energy resources in various countries. However, these immense positive effects come in the backdrop of constantly diminishing energy resources. The non-renewable sources of energy, which are currently in high use, will be depleted someday. This means most of the benefits of the resources will no longer be derived and, without other renewable sources of energy, the economic development may hit a snag. In the same note, energy resources have not expectedly benefited economies of most developing countries. Violent conflicts and ineffective policies mark the ‘resource curse’ that denies the countries the benefits of the energy resources. As a parting shot, effective energy governance is entirely necessary for a country to enjoy rapid economic development that comes with the existence of energy resources. Therefore, unveiling and shifting the focus to renewable sources of energy, coupled with appropriate policies, is the key to sustainable economic development from energy resources.