Unpacking Exhaustible Natural Resource Conversion : Where Does it Become Unsustainable?

Hartwick's rule posits that sustainable development can be realized by effectively converting exhaustible natural resources into human and produced capital. Despite its theoretical appeal, empirical evidence of whether countries adhere to this rule is mixed. This paper introduces a novel four-stage model of exhaustible resource conversion—discovery, extraction, appropriation, and investments—as a conceptual and empirical framework for synthesizing conflicting findings in the existing literature. Using Genuine Savings (GS) per capita as a measure of sustainable development, we conduct a comprehensive analysis of 126 countries over 39 years from 1980 to 2018 to identify the inhibitors of sustainable development at each of the four stages. We focus on three fossil fuels, oil, gas, and coal, to demonstrate the underlying causal relationships. Rent-seeking and corruption during the extraction stage present the most significant barrier to sustainable development. In contrast, fossil fuel exports in the appropriation stage positively impact sustainable development, barring the most export-dependent countries. Finally, in the investment stage, government spending enhances sustainable development. Therefore, our findings suggest that effective policies for successful exhaustible resource exploitation should focus on curbing corruption in the extraction stage, developing national industries, and refining resource taxation practices