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By selecting a strategy, choosing a competitive niche and engaging in collaboration with global buyers, local actors can obtain an opportunity to learn and build their competitiveness as in the
case of India ’s Bt Cotton.
The above discussion demonstrates yet another characteristic of this sector in which learning stems from the
‘transformative’ capabilities the ability to transform externally available codified knowledge into context-specific knowledge and
‘configurational’ capabilities the ability to synthesize novelty by creating new configurations of knowledge, artifacts and actors for progress
using the words of Bender and Laestadius quoted in Hirsch- Kreinsen et al. 2005, p. 15. In other words, unlike the manufacturing sector,where knowledge is more generic, codifiable and scalable,
knowledge required for NR-based activities is local, specific, tacit and non-scalable. The knowledge that the sector requires poses a high risk for any investors; however, consolidating the
local knowledge base is key for the future growth and cannot be left for market forces. In fact, until recently public sector funded agricultural research institutions in developed countries while
this still continues in many developing countries. This is not due solely to the concern for food security but the secto
r’s inherent nature of requiring variable and local specific knowledge makes is unattractive for investment under the market logic and intervention becomes necessary
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Padrey et al, 2004
Moreover, potentials presented in NR-based sectors hinge upon the strategic choices and the institutionspolicies that shape the decision-making process. This also means that institutions
surrounding the NR are important because this can either trap a country into certain developmental trajectories via shaping the behavior of stakeholders in a path-dependent manner, or it can lead
towards new pathways. For instance, it has been suggested that being abundant in NR with underdeveloped institutions creates an environment prone to corruption and political conflicts
Auty 2001; Collier 2010. Of course there are counterexamples such as Botswana, Indonesia, Malaysia and Thailand where, despite them being NR-based countries, they were able to grow
steadily by investing more than 25 of GDP, thereby departing from path dependency Gylfason 2001. These examples again suggest the importance of institutions. However, very few studies
have really tried to unpack the process of institutional change in this sector under the forces of globalization.
It is worth mentioning that some new actors are started to take part in building institutions by providing a means to improve the transparency of production methods. Organizations such as
the Extractive Industry Transparency Initiative EITI and guidelines such as the Natural Resource Charter and numerous other initiatives in eco labeling etc have attempted to shift the management
of NRs in a sustainable and inclusive manner by disclosing information on production methods applied in the extraction process to wider public in comprehensible manner. These emerging
monitoring organizations may play increasingly important role in future.
2.2 Institutions and Natural Resources
Institutions can be narrowly defined as the ‘rules of the law’, following the seminal work of
Williamson 1975, 1985, 1998; however, they can also be defined broadly as ‘how behaviors are
formed ’ or ‘the way things are done’ Greif 2006 including informal rules such as culture,
customs and tradition North 1990, 1991; Hodgson 1988, 2006; Aoki 2007. This paper adapts this broad definition of institutions,which includes narrowly defined formal rules
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Now private sector led agricultural research institutes are more common than in past. This is especially so for research on commercial crops and in the area where biotechnologygenetic science plays a role i.e. seed industry Padrey, 2004
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legislation, constitutions etc. and informal rules customs, and traditions that shape the behavior of individuals Greif 2006; Aoki 2007; Hodgeson 1988, 2006.
For NR, ‘institutions’are an important concept because they are set of rules that define the
scope of ‘access’ ‘excludable’ and ‘non-excludable’ and ‘ownership’ ‘non-rivalrous’ and
‘rivalrous’.Institutions can shape the way stakeholders interact with NR. Hence, institutions can evidently determine how NR is used and the ways in whichthe benefits are collected and
distributed Acemoglu and Robinson 2013. Recent policy documents UNDP, IGC, EITI provide some guidelines for governmentsregarding management of the NRespecially for
minerals sectors.The documents state the importance of accountability and transparency of institutions; particularly regarding property rights mechanisms, taxation and revenue distribution,
government spending and private sector development surrounding the NRCollier 2010, Collier and Laroche 2015.
There is long-standing research on institutions in managing NR as common goods Hardin 1968; Ostrom 1990; Feeny 1990. Here, the institutions involved in coordinating sustainable use
of NR must resolve inner tension between the individual and collective interests among stakeholders because without such measures in place, any individual user could maximize
hisher returns, eventually leading to a ‘tragedy of the commons’
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Hardin 1968. Recognizing the complex nature of common goods, Hardin 1978 argued that this can be
only managed either by allowing the market to set prices on access and ownership of NR or transfer ownership to the government and manage them through strict regulation. Ostrom 1990
disagreed with this view and argued instead that local self-governing institutions would
‘emerge’ to deal with the threat of resource degradation because she believed that involved stakeholders can
‘learn’ and acquire new behaviors from close and repeated interactions in a game-theoretical manner Ostrom 1990. Her work 1990 assumes such interactions perpetually
align the interests of local stakeholders to achieve the ‘status quo’ in the local system. In other
words, she assumes that stakeholders are able to create effective institutions without much intervention.
So far, most of the discussions on institutions in relation to common pool resources have been limited to managing resources in restricted geographical areas. Hardin
’s 1978 example of herders and commons occurs in one geographical zone, and this was also the same for early works by
Ostrom. The current NR-based activities and institutions to manage NR are set against a more global background. Many NR-based activities in developing countries are increasingly integrated
with global operations of large firms and come under the scope of power relations. Therefore it may seem difficult for a well-functioning system to self-emerge, as stated by Ostrom 1990.
Today, many NR require a level of coordination that is not limited to local geographical boundaries i.e. communal rules, neighborhood watch at the village, community level but extends beyond
national borders, encompassing diverse sets of value systems with potentially unequal power relationships. Moreover, it is possible that the speed of emergence of institutions may not be fast
enough to match the speed of exploitation in locality that is being forced by global forces. In any case, the current situation surrounding NR poses different challenges to the existing literature on
common goods and institutions.
Lenzen et al. 2010 stated that increasing consumption of imported commodities by developed countries is causing significant losses of biodiversity in the producing countries. He
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Hardin 1968 addressed ´the tragedy of the commons´ with a simple example of herder behavior. By putting one more cow in a limited area of land common, the individual s maximization attempt would ultimately cause a reduction in the
collective benefits of all users of the common through the eventual overloading of the resource.
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demonstrated this by linking the loss of biodiversity in developing countries to increasing global trade. Several case studies have also linked intensive trade of natural resource-based
commodities e.g. palm oil, coffee and soybeans to the deterioration of biodiversity in the producing countries Perfecto et al. 2003; Philpott et al., 2008; Fearnside, 2001; Koh and Wilcove,
2007. These examples suggest that under the current global production system, with strong market incentives and fragmented interactions of local and global stakeholders, a vacuum of power is
created that fails to protect public goodscommon goods. Under such circumstances, it is difficult for institutions to emerge by themselves. Currently many developing countries are trying to
diversify export products by taking advantage of their latent comparative advantage Lin 2011; UNECA 2007, namely, NR. This means that economic activities based on NR would likely to
increase, eventually putting the sustainability at stake.
Technological change and scientific knowledge also shape institutions via the provision of new tools to control and monitor the enforcement of regulations on NR use. For instance, the
development of a satellite system can improve control over illegal use of NR such as forests, land and water resources etc. or the use of ICT to diffuse information on bad practices labor or
environmental can also help to encourage certain behaviors. Technological change also interacts with market demands for NR. The discovery of new uses for NR i.e. biofuels, bioplastics etc.,
new extraction methods, new seed varieties i.e. Bt cotton etc., new cultivation methods i.e. zero tillage etc. are likely to influence the market greatly and change the trajectory and speed of
development of NR-based industries. Furthermore, it needs to be kept in mind that exposure to knowledge alone lead to learning Acquiring new technology and knowledge require absorptive
capacity Cohen and Levinthal 1990, 1991; Bell and Albu 1999; Bell and Pavitt 1995.
The investing in productive asset is considered an important part of the natural resource management policy chain by Collier and Laroch 2015. The policy chain is made for non-
renewable resources Collier 2010 of mining activities as follows: from discovering, exploiting, taxing, investing in investing, and investing. Collier and Laroch 2015 argue that at each stage of
development, mining activity requires appropriate institutions supported by the government. The discovering stage requires overcoming knowledge asymmetry on geological prospecting, the
exploiting stage requires overcoming the need for high investment in infrastructure; the taxing stage also entails overcoming uncertainties in the market and knowledge asymmetry in extraction
of resources, ensuring accountability and transparency; the investing in investment stages need to overcome the lack of suitable assets prior to making investments human resources, infrastructure
etc. and macroeconomic stability, and finally, the investing stage, in which revenues arising from the NR are invested to support long term growth. Here, Collier and Laroch 2015 pointed out that
institutions evolve along with the development stages of industry.
While globalization can create substantial threats to the sustainable use of NR, there are new stakeholders that may counter balance such impacts. Global consumers are now more able to
express their preferences through various media from international NGOs, international media and consumer organizations that are providing critical information on products and production
methods such as ETI, ISO, global monitoring international standards, i.e. eco labels that may be critical for an individual
’s value system. This means that consumers in distant markets are also involved in shaping institutions to manage NR sustainably. The emergence of such indirect
forms of institutions may seem distance but can soon become powerful means to put NR-based industries onto a sustainable track for development. Whether such institutions are sufficient to set
the industry onto a growth trajectory is not
very clear –
the strong role of government in actively making use of NR has been called for but there is as yet little in practice.
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2.3 How institutions are shaped and transformed
