Engerman on Lederman and Maloney, eds., _Natural Resources: Neither Curse nor Destiny_

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Published by EH.NET (February 2007)

Daniel Lederman and William F. Maloney, editors, _Natural Resources: 
Neither Curse nor Destiny_. Stanford, CA: Stanford University Press, 
2006. xx + 369 pp. $30 (paperback), ISBN: 0-8047-5709-7.

Reviewed for EH.NET by Stanley L. Engerman, Departments of Economics 
and History, University of Rochester.


This collection of eleven essays is published in a series sponsored 
by the Inter-American Development Bank, the United Nations Economic 
Commission for Latin America and the Caribbean, and the World Bank. 
The manuscripts selected were to "represent the highest quality in 
each institution's research and activity output," and these include 
papers authored by scholars at universities in the United States, 
Europe and Latin America. All essays are concerned with answering 
questions about the so-called curse of natural resources -- the 
presumed effect of rich resource endowments in lowering rates of 
economic development, particularly for Latin America. The essays 
employ different analytical methods, different samples of countries, 
and different sets of independent and dependent variables.

There are several explanations offered for the argued-for putative 
negative correlation between resources and growth. One with a long 
intellectual history relates to the question of whether it is better 
for growth if things are easy, based on the presence of ample 
resources and favorable climate, or are difficult, because of limited 
resources and thus the need to labor hard to get adequate output. 
Does the easy availability of food- stuffs make for a limited labor 
input and does a relative absence of resources lead to the drive for 
labor-saving innovations, so that lower incomes at first lead, in the 
long-run, to higher incomes and more rapid growth? More recent 
arguments concerning the negative relation between resources and 
growth present more specific economic relations -- the relatively 
slower advances in productivity for resources and agriculture, 
compared to manufacturing and services, and the relative long-run 
price declines in agriculture relative to manufacturing. At issue, 
also is the ability of resource-based economies to diversify over 
time, due either to public policy or to the behavior of private 
firms, and their ability to develop the necessary complementary 
capital stock, physical and human.

The volume is divided into three sections, primarily on the basis of 
method. After the introduction by the two editors, the next three 
essays entail the use of econometric evidence. The next section has 
four essays described as "lessons from history," which involve less 
quantitative and statistical evidence than those in the first 
section; and the third section is similarly also less statistical, 
and deals with some broader theoretical issues of trade theory and 
public policy. All told the essays include considerable quantitative 
material, with some 105 table and figures. There are extensive 
bibliographies. Works such as Sachs and Warner (1995, 1997, 2001), 
Prebisch (1950), and Auty (1998, 2001) are generally the main centers 
of attack. The general conclusion of most essays is that there is no 
evidence that natural resources provide an economic curse. This is, 
in part, because of the specific relationships tested, which relate 
economic growth to resources as well as the levels of human capital 
and the capacity to innovate. Resources in conjunction with human 
capital and appropriate technology will generally lead to rapid 
economic growth, whereas resources without human capital and 
technology will produce only limited growth. And, as earlier argued 
by Kuznets and others based on the case of Japan, the absence of 
resources with the appropriate institutions and high levels of human 
capital and technology can generate modern economic growth. Several 
studies point to the changes in the empirical basis of the "curse" 
argument. In recent years the developments in technology and the rate 
of productivity change in the agricultural and mineral sectors have 
been greater than in the manufacturing and service sectors, while 
there has been no strong evidence of a relative decline in prices in 
the resource sectors. Their findings, plus the successful past 
experience of several economies during times of resource expansion 
cast some doubt on the traditional arguments.

Detailed econometric analysis by Lederman and Maloney and by Manzano 
and Rigobon use the data from the Heston-Summers database to estimate 
the effects of trade structure and of resource production on growth. 
Both conclude that there is no direct evidence of a "resource curse." 
Manzano and Rigobon argue for an indirect effect, via borrowing when 
resource prices are high, attributing problems found in cross-section 
estimates (but not in panel data) to debt overlay. These problems 
they attribute to "credit market imperfections," not to 
resource-associated difficulties as usually argued. On the basis of 
some historical examples and with the use of over ninety nations from 
the Heston-Summers database, Bravo-Ortega and de Gregorio conclude 
that natural resources are a "hindrance" to growth only "in countries 
with very low levels of human capital," (p. 92) and that "abundant 
human capital" can offset any problems due to natural resources (p. 
93). This essay by two Chilean economists is perhaps the clearest 
presentation of the central message of these studies.

A detailed econometric analysis of resource price data for the 
twentieth century by Cuddington, Ludema, and Jayasuriya draws upon 
the numerous studies undertaken by the World Bank and others. The 
authors conclude that there has been no clear downward trend in 
natural resource prices, with there being only a break in 1921. There 
are three detailed historical studies of different parts of the world 
to examine the impact of natural resources on growth. Maloney argues 
that the failure of Latin America to develop as rapidly as others 
reflects difficulties in human capital and innovative capacity and 
the failures resulting from protectionist policy. He notes the impact 
of immigrants upon the industrialization of Latin America, and the 
importance of engineers and technical education in Sweden, Australia, 
and the United States. Wright and Czelusta provide more historical 
detail in studying the cases of the United States, Australia, Chile, 
Peru, Brazil, and Botswana, indicating the many examples of 
"successful resource-based growth" (p. 207). They argue against 
accepting a belief in the resource curse to preclude a growth policy 
based on taking advantage of the resource endowment. Blomstrom and 
Kokko demonstrate Swedish success based upon exporting natural 
resources (mainly from the forest industry), accompanied by an 
expansion of education, human capital, and technological and 
institutional changes. Sweden also benefited from an open economy 
which led to higher level of exports, to lower-priced imports, and to 
more foreign direct investment.

In the final part, Venables describes the endogenous characteristics 
of comparative advantage, with the roles of transport costs, 
externalities, and agglomeration effects. It is a useful survey of 
the geographic approach to international trade and development, and 
he comments that "natural resource endowments are not an important 
part of the story in the context of the theoretical models discussed" 
(p. 283). Lederman and Xu, using the Heston-Summers dataset, argue 
that economic growth is positively related to exports, except for 
tropical agricultural exports. The key point is, again, the crucial 
role of "endowments of human capital, knowledge, and infrastructure" 
(p. 314). Martin shows that over the last thirty years of the 
twentieth century the share of merchandise exports from developing 
countries that were manufactured goods rose sharply, while the shares 
of agriculture and mineral goods declined. He advocates an open 
economy, as well as encouragements to technological change and human 
capital investment to promote growth.

This volume in the Latin American Development Forum Series, a 
co-publication of Stanford Economics and Finance, the Stanford 
University Press, and the World Bank, represents a very high-quality 
publication of essays that all generally point to the same policy 
conclusions. Works pointing to different conclusions are frequently 
cited, but there is nothing included by those scholars who argue in a 
different direction. The basic arguments that the key variables for 
growth are education, innovation, and human capital remain critical 
for understanding the nature of, and prospects for, economic 
development. Resources alone cannot necessarily lead to success, but 
in appropriate circumstances, they do not provide a "curse" limiting 
the achievement of success.


Stanley L. Engerman is John H. Munro Professor of Economics and 
Professor of History at the University of Rochester.

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