The discovery of valuable mineral resources can be the answer to manifold economic difficulties and effective management of their extraction can catalyze development. Infrastructure—a railway through the Andes, for instance—is often the beneficiary of the extractive sector’s sudden growth; similar development has been seen in Asia as well. This was a common occurrence in the 1970s, when resource prices were very high. The use of resources as collateral for loans has expanded not only in emerging economies, but also in already developed countries. As resources are increasingly used in the production of different goods, their demand rises. For example, in China, resources are used extensively in their ever-growing manufacturing and infrastructure development projects which in turn has fueled demand from resource-producing countries around the world, particularly since the 1960s. According to the World Bank, merchandise exports as a percentage of GDP have surged to record highs, close to 70% in Chile, around 120% in Mexico, and 200% in Malaysia, all since 2000.
 
Thus extractive industries, e.g., copper, gold, oil, and natural gas, have grown rapidly in many developing countries. Historical data on energy production points to especially dramatic increases, as shown in Figure 1. This massive production highlights the importance of the non-renewable resource sector to the economic growth of developing resource-rich countries. By facilitating extraction and production processes, advances in technology have played a role as well, providing better access to deposits and faster and cheaper transportation. A well-managed mining sector can promote employment, provide investment opportunities, finance infrastructure, education, health care, and meet other social needs.  Therefore, mining companies have become major drivers in economies where resources are used to finance development. But there are also downsides and risks associated with this development model, as we recently witnessed following the collapse of oil prices after 2014.

However, as resource-rich countries globalize, their dependence on external demand and financing increases. This can make the domestic economy more vulnerable to outside shocks. Some of the underlying factors include resource price fluctuations, a slowdown in the economic growth of a major trading partner, increased trade barriers, debt and financial crises, and geo-political conflicts. These relationships are discussed in a number of research papers.¹ One of the issues concerns debt that may be used for the import of capital goods to increase domestic production, to search for more resources, and/or support industrialization. However, for a positive impact to result, the debt must be carefully managed.
 
During the 1970s, when resource prices were high, resource-rich countries borrowed extensively from the international capital market using their resources as collateral. Historical data on external debt stock and its share in GDP are illustrated in Figure 2 for different resource exporting countries. Resource prices fluctuate and affect export revenues; thus, through continued financing of domestic consumption and/or repayment of debt, external debt increases. A number of countries were hit by the debt crisis during the 1980s, especially Latin American countries. Some defaulted on their debt. In recent years, external debt burdens have increased in several developing countries including Kazakhstan, Malaysia, and South Africa. The breakdown of the debt statistics reveals whether short-run or long-run debt dominates. An increase in short-run external borrowing in certain countries, especially in East Asia, heightens liquidity risk and currency risk, and makes these countries more vulnerable to external shocks.