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Natural Resources and Economic Growth: Learning from History. Edited by Marc Badia-Miro, Vicente Pinilla, and Henry Willebald. London: Routledge, 2015. Pp. xix, 374. $160.00, cloth.

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Natural Resources and Economic Growth: Learning from History. Edited by Marc Badia-Miro, Vicente Pinilla, and Henry Willebald. London: Routledge, 2015. Pp. xix, 374. $160.00, cloth.

Published online by Cambridge University Press:  17 November 2016

Mark Kanazawa*
Affiliation:
Carleton College
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Abstract

Type
Reviews of Books
Copyright
Copyright © The Economic History Association 2016 

This is a valuable book that tries to answer a question of considerable importance to many economists: What precisely is the role of exhaustible natural resources in contributing to economic growth and well-being? This is one of the great unanswered questions in the natural resource literature, one which is made more intriguing by the well-known empirical finding that rich natural resource bases are no guarantee of, and may well detract from, good economic performance. This somewhat counterintuitive finding, of which there are various versions, including Dutch disease, resource trap, or resource curse, has sparked a considerable effort by economists to try to better understand the conditions under which it will be true. The stakes are high: we are talking about the difference between judicious development of natural resources that could significantly raise a country's living standards, or wasting golden opportunities to benefit from nature's bounty, to the detriment of many.

The thesis of this book is one that will appeal to economic historians: that there are lessons to be learned from the historical experiences of different countries as they have developed their resource bases. Toward this end, the book has assembled a series of historical case studies for countries from six continents. Some of these are shining success stories, others are abject failures. The cases are contextualized within a theoretical and historical framework that is laid out in the first three chapters. After that, it is off to the races, as the reader is confronted with instance after instance of country-level experiences, and cross-country comparisons, in developing natural resources and the impact on economic performance. The overall picture is a complex one, but a key bottom-line message is one that I suspect will resonate with many economists: that the quality of a country's institutions—things like property rights definition, contract enforcement, and internal and external security—is an important determinant of how efficiently resources are developed and how widely the benefits accrue to the country's citizenry. Another important message is that the type of resource matters, the key distinction being how concentrated (precious minerals) or widely dispersed (agricultural lands) the resource is found to be. Here, the idea is basically: the more concentrated resources are, the more readily rents can be expropriated by corrupt officials or private rent-seekers. Given that countries vary dramatically with regard to both institutional quality and type of resource endowment, it is little wonder that we have observed considerable differences in the experiences of countries in developing their resources and the effectiveness of their development practices in contributing to their economic performance.

The editors of this volume faced a daunting challenge: how to support with evidence the story being told about the importance of institutions and resource types in determining whether a country would be stuck in a resource trap. The strategy they adopted was to take the long view: in most cases examining periods spanning longer than a century. The value in taking this long view was to be able to look at broad patterns and to sc on trends and cycles in resource development, growth rates, and institutional change. There was considerable value in doing this, as it was impossible to lose sight of the forest for the trees.

It should be mentioned that there was also a cost, in terms of being able to convincingly forge the connection between institutions and the development of resources in support of economic performance. Not in terms of the primary thesis that institutions matter: my guess is that most readers will end up persuaded that that there is truth to this. Rather, I suspect many readers will still be wondering how and why they matter. When one takes a macro-, long-term mega-approach such as the one taken here, there are so many complex connections, causal mechanisms, and moving parts, that every conclusion one may draw about any individual causative factor seems to be conditional on what else is going on. Taken as a whole, one may find within the chapters the following partial list of factors that influence whether a resource curse will occur: type of resource, concentration of resources, income inequality, fiscal policy, export dependency, democratic institutions, colonial heritage, social capital in local communities, factors determining receptivity to propositional knowledge, climate, and land quality. The list goes on and on. The general conclusions drawn are based upon empirical regularities in what is largely a wide-ranging qualitative analysis, in which few propositions are actually tested, but everything seems to add up.

If done well, there is potentially considerable value in such a wide-ranging macro-exercise. At the very least, it can show us where we stand right now in terms of what we know and do not know, and it points us in the right direction in terms of where it might be most fruitful to exert our analytical efforts. In my opinion, this book largely succeeds in accomplishing exactly this. In its melding of modern economic theory, historical evidence, and governance institutions, it provides a fine example of an approach that many of us would probably consider to be potentially highly fruitful. My guess is that this book will stimulate further research with a potentially significant payoff: understanding how to create better institutional environments for more effective development of natural resources. All economists interested in the relationship among economic growth, natural resource abundance, and institutional environments would do well to read this book.