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Natural Resources and Economic Growth: Learning from History

Editor(s):Badia-Miró, Marc
Pinilla, Vicente
Willebald, Henry
Reviewer(s):Mohamed, Rahim

Published by EH.Net (December 2015)

Marc Badia-Miró, Vicente Pinilla, and Henry Willebald, editors, Natural Resources and Economic Growth: Learning from History. New York: Routledge, 2015. xix + 374 pp. $160 (hardback), ISBN: 978-1-13-878218-1.

Reviewed for EH.Net by Rahim Mohamed, Department of Political Science, University of North Carolina at Chapel Hill.

Natural Resources and Economic Growth offers a timely and multifaceted look at the often double-edged relationship between natural resource wealth and long-term economic development. The volume’s sixteen chapters, which range in format from single-country case studies to cross-national statistical analyses, address natural resource governance issues that have been encountered on each continent at various points in (generally post-industrial) history. Specific country cases include Australia, Botswana, Indonesia, Nigeria, Norway, Spain, the United States, and Venezuela. Contributors focus heavily, although not exclusively, on the political and economic challenges associated with the endowment of coal, petroleum, precious metals, and other coveted mineral assets. This makes the book an especially informative read in light of the ongoing slump of global commodity prices and the concomitant political fallout now being felt in many resource rich countries.

Broadly speaking, the volume’s contributors take on two major propositions. The first is the existence of (or lack thereof) a “natural resource curse,” as posited by Sachs and Warner (1995, 2001). This term refers to the hypothesized tendency of natural resource rich countries to underperform economically due to self-destructive governance patterns enabled by resource windfalls. The second is the ubiquitous claim that many of the negative externalities associated with natural resource-driven economic growth strategies can be mitigated through the development of effective political institutions, often those associated with democracy and the rule of law (see Acemoglu et al. 2001). The authors mostly re-affirm these positions but, at the same time, bring some much-needed context to the discourse.

The general consensus that emerges from the chapters of Natural Resources and Economic Growth is that abundant natural resources are “non-neutral” for economic development, but their precise effect on a given economy is heavily mediated by a myriad of intervening variables. This is spelled out clearly in the book’s opening chapter by the editors, who write “History teaches us that (resource) ‘curses’ and ‘blessings’ are constructions — they are the result of the socioeconomic system” (p. 17). Moreover, several of the book’s case studies demonstrate that, while good political institutions and public policies can certainly help countries manage natural resource wealth, such configurations are often embedded in unique national histories. This means that policy remedies that have proven effective in one setting will not necessarily work elsewhere.

One excellent example of the non-replicability of distinct natural resource governance schemes is found in the book’s chapter on Norway (chapter 15), co-authored by Andreas R. Dugstad Sanders (of the European University Institute) and Pål Thonstad Sandvik (of the Norwegian University of Science and Technology). Dugstad Sanders and Sandvik, who reconstruct the evolution of Norway’s natural resource regulatory regime over more than a century, portray the country’s vaunted system of oil wealth management as the ultimate product of a complex set of political interactions between social democrat and conservative elements. Specifically, they argue that, while Norway’s dominant Labor Party built the regime’s edifice, its Conservative Party (which governed through much of the 1980s) placed crucial constraints on Statoil (Norway’s state oil company) and other powerful industry players (pp. 326-27). This resulted in a robust yet constrained regulatory framework that, over time, closed off opportunities for rent seeking.

As a group, the authors do an impressive job of providing nuance to the instructive but oversimplified resource curse thesis. The book’s second chapter, written by eminent development economist Richard M. Auty, jumps out in this respect. Auty, who himself coined the term “resource curse” in his 1993 book Sustaining Development in Mineral Economies, argues that “rent curse” is now a more appropriate term for the sharp boom-bust cycle that characterizes many resource rich economies. He holds that the deleterious macroeconomic effects catalyzed by natural resource windfalls can also be sustained by inflows of other types of rent, such as foreign aid and remittances. This happens when high rents encourage the ruling elite to pursue a course of immediate self-enrichment, versus the less expedient strategy of making the growth-promoting investments necessary to build a broad, revenue-generating tax base. Auty’s notion of a rent curse helps explain why the pattern of growth collapse exhibited by resource dependent economies can also be observed in several aid dependent countries, such as those in the largely barren Sahel region of Sub-Saharan Africa (p. 31). This more precise diagnosis of the problem at hand will ideally lead to a more effective course of treatment.

One small editorial note is that the volume’s chapters are somewhat lacking in coherence. The book’s final chapter, which examines the emergence of water scarcity as a source of political conflict in Spain, feels especially out of place. While water is unquestionably our most vital natural resource, the chapter clashes somewhat with the rest of the book’s focus on mineral resources. Moreover, the chapter’s authors (Ignacio Cazcarro, Rosa Duarte, Miguel Martín-Retortillo, and Ana Serrano) focus on the geographic and ecological dimensions of the issue, eschewing the macroeconomic perspective of the other essays. The book also suffers from the absence of a proper concluding chapter that could tie together several of the disparate insights offered by its contributors. These are, of course, minor drawbacks that do not take away from the quality of this highly informative and superbly crafted volume.

Natural Resources and Economic Growth is an authoritative text on one of the most vexing problems in development studies and a must read for academics, graduate students, and anybody interested the pivotal role that commodities play in the global economy.

References:

Acemoglu, D., Johnson, S., and Robinson, J. A. 2000. “The Colonial Origins of Comparative Development: An Empirical Investigation” (No. w7771). National Bureau of Economic Research.

Auty, R. 2002. Sustaining Development in Mineral Economies: The Resource Curse Thesis. Routledge.

Sachs, J. D., and Warner, A. M.    1995. “Natural Resource Abundance and Economic Growth” (No. w5398). National Bureau of Economic Research.

Sachs, J. D., and Warner, A. M. 2001. “The Curse of Natural Resources.” European Economic Review, 45(4), 827-838.

Rahim Mohamed is a Ph.D. Student in Political Science at the University of North Carolina — Chapel Hill. He is broadly interested in development and governance issues surrounding natural resource wealth and is the author of “Unfinished Business: Reflections on Canada’s Economic Transformation and the Work Ahead,” The Independent Review (forthcoming).

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Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economywide Country Studies and Comparative History
Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII