an interesting article on "the curse" (and I don't mean the one that
haunts the Red Sox) --
February 19, 2004/New York TIMES
ECONOMIC SCENE
Resources Form the Basis for Economic Growth
By JEFF MADRICK
POPULAR notion in economics today is that an abundance of natural
resources is a "curse" for developing nations. Such an endowment, it is
argued, encourages corruption, undermines institutional development,
pushes the value of a currency uncompetitively high and cannot support
long-term growth because the reserves eventually run out. Small wonder,
then, that oil-rich nations like Iraq and Venezuela are poor or in
decline.
Gavin Wright will have none of this. Mr. Wright, an economic historian
at Stanford and long a specialist in the role that natural resources
play in economic growth, agrees that overdependence on a single resource
can lead to poor policies, but it is by no means inevitable. To the
contrary, many developed and developing nations have used their mineral
resources as springboards to wealth and broader-based development - not
least the United States itself.
Mr. Wright and a colleague, Jesse Czelusta, have written a fascinating
study (at www-econ.stanford.edu) on the subject that should be required
reading. The lessons to be drawn are especially pertinent for countries
like Iraq.
The economists start their analysis by looking at the evidence compiled
by advocates of the resource curse. The seminal study was done by
Jeffrey D. Sachs and Andrew M. Warner in 1995 and showed a strong
statistical relationship between resource abundance and slow growth.
Many follow-up studies using the same method draw remarkably sweeping
conclusions about the inevitable disadvantages of resource abundance.
One recent study explicitly concludes that poor institutional
development, including weak governance and property laws, is "intrinsic"
to nations with oil and other minerals. Mr. Sachs and Mr. Warner have
recently concluded that the curse is a "reasonably solid fact."
But Mr. Wright and Mr. Czelusta point out that almost every one of these
studies uses the proportion of exports of the particular natural
resource as a proxy for a nation's mineral abundance. Among other
obvious problems with this measure, a high proportion of resource
exports may simply reflect a lack of other kinds of exports, which is
almost a definition of underdevelopment in the first place.
A better measure of abundance would be resources per capita or per
worker. New studies using such measures, including one by the World Bank
economist William F. Maloney, published in Economia, can find no telling
relationship between abundance of reserves and slow growth. Some nations
do well with their endowments, others do not.
Why is that? Historical and contemporary case studies provide some
guidance. America's own rise to economic supremacy in the late 1800's
occurred just as it was becoming the leading producer of almost every
major natural resource of the industrial age, including iron ore, lead,
coal, copper, zinc, timber, zinc and nickel. Such leadership did not
hold America back, nor did it hold back other nations like Australia and
Canada. Britain, where the industrial revolution started, was notably
rich in coal reserves, not to mention wool for its critical textile
industry.
But what is most relevant to policy, America did not become a leader
simply because it had been endowed by nature with this bounty of
resources, as we are typically taught in our high school textbooks. Nor
was it because it enjoyed enlightened governance in the 1800's, like
open and free markets and clear-cut rules about property ownership. In
fact, millions of acres of coal mines in the 1800's were secretly bought
as farmland. Enormous tracts of iron-rich land were bought cheaply
through fraudulent claims under the Homestead Act.
Rather, as Mr. Wright and another Stanford economic historian, Paul A.
David, convincingly summarize in a 1997 paper, the nation invested
heavily in mineral exploration, new techniques and mining education.
Other industries received spillover benefits from new technologies, the
low costs of natural resources and a technically trained labor force.
Public investment was especially important. For example, the 1879 United
States Geological Survey, a detailed mapping of reserves and potential
reserves, was critical to development. Many state colleges offered
mining degrees by the 1890's, including the University of California at
Berkeley.
But does such analysis apply to today's developing nations?
Mr. Wright and Mr. Czelusta point out that some Latin American nations,
like Chile, Peru and Brazil, developed mineral resources through
concerted efforts at investment and development.
As for cases like Venezuela, often cited as a leading example of the
resource curse, advocates of the curse thesis argue that oil contributed
to a debt-driven boom th
