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Natural resources have a double-edge effect on economic growth, in that the intensity of its use raises output, but increases its depletion rate. Natural resource is a key input in the production process that stimulates economic growth. However, the depleting character of natural resources coupled with diminishing returns of factor input implies that dependence on natural resource utilization is not an optimal strategy for sustainable growth. By extension, intensive utilization of natural resources undermines sustainable development. Natural resources have limited direct economic use in satisfying human needs but transforming them into goods and services enhances their economic value to the society. Through the mix of productive activities by different sectors of the economy, transformation of natural resources into usable goods and services occurs to propel the overall economy to achieve sustainable growth that forms the basis for sustainable development.
The productivity of factors of production has positive relationship with absorptive capacity. Technological inter-connections among various sectors of the economy could evolve from structural and spatial interdependence of the production processes of the sectors. The rational response to incentives leads to increase in the level of activities of sectors of the economy in a self-reinforcing manner. The expansion of activities in the various sectors of the economy is mutually self-stimulating to provide opportunities for economies of scale that translate into lower per unit cost of production.
The temptation for rent-seeking behavior could undermine the efficient use of the natural resources to stifle economic growth and weaken the possibility of positive externalities. The use of rents derived from natural resource extraction to facilitate complacent consumption1 at the detriment of real production leads to the expansion of nontradable sector activities while tradable sector activities such as manufacturing shrink. This give rise to the “Dutch Disease”2, which is a chronic source of slow growth due to the absence of “backward and forward” linkages among sectors of the economy [2]. The manufacturing sector, with a sound service sector for support, is a vital source for economic growth through learning-by-doing, as such should have a pivotal link with natural resource sector to stimulate real productive activities that propels the economy toward sustainable growth and development. Ideas that emanate from production processes is the driving force for generating high levels of growth [3] to form the bedrock for sustainable development.
As the essence of sustainability is to maintain a given level of social welfare at a constant level [4], six key conditions are prerequisites. These are nondeclining consumption (utility), maintaining (constant) production opportunities over time, nondeclining natural capital stock, maintaining a steady yield of resource services, stability and resilience of the ecosystem through time, and the development of capacity for consensus building. These sustainability conditions require efficient management of resources as well as ethical and moral standards, which makes the crucial role of government in coordinating economic, social, and political activities imperative for achieving sustainable development.
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