resource poor Switzerland has enjoyed an excellent economic performance compared with
resource rich Russia. In sum, the effects of natural resources on the economy vary from
country to country and across different episodes in history.
More work is required on the changing role of natural resources throughout history.
The resource curse features especially during the last four decades, but before countries such
as the US seemed to have harnessed resources for growth. Is this because those countries that
industrialized first also had good institutions and those countries that remained
underdeveloped had bad institutions and when resources were exploited at a later stage they
led to corruption, rent seeking and strife? Key is the contractual basis for exchange. Natural
resources may be under-produced due to lack of effective property rights and high transaction
costs (Anderson and Libecap, 2005). The Coase theorem says that with well-defined property
rights private, voluntary negotiations yield efficient outcomes, but high transactions costs may
preclude such outcomes. More valuable resources tend to have more precise property rights,
because the larger benefits from defining and enforcing rights offset the higher costs of doing
so (Demsetz, 1967). Private mineral rights indeed became more explicit as mine values
increased. They evolved from local property rules within the mining camps to formal
territorial and state statutes and judicial opinions as the extent and value of the deposits in the
regions became more apparent (Libecap, 1976). With increased competition for valuable
resources, informal rules were insufficient to reduce risk and support long-term investment to
develop the mines. Making property rights more formal boosted mining investment. However,
in case of the Western timberlands the transaction costs were more than the government price
of land and timber depredations continued (Libecap and Johnson, 1979).
These case studies suggest interesting hypotheses about transactions costs and the
implications of property rights for turning the resource curse into a blessing. For example, if
transport costs are high relative to those of manufactured goods, extra resources lower the
domestic price for a key input to manufacturing giving domestic manufacturers a comparative
advantage. For example, car producers in Detroit had cheap access to iron ore. Another
hypothesis is that those exploiting the natural resource can sell their rights and consume the
entire present value of their reserves, thus causing an initial consumption boom. Otherwise,
their consumption possibilities seem more limited leading to a higher saving rate. Another
interesting question is whether the more widespread ownership of resources in the nineteenth
century had something to do with a smaller minimum efficient scale of production.
2.3. Cross-country correlations
Fig. 1 indicates a negative correlation between growth performance and the share of natural
resources in merchandise exports, but this does not tell us anything about causation. Natural
resource dependence may harm the economy through other variables than lower growth (e.g.,