Resource-Based Growth Then and Now

Resource-based economic growth has had a bad press for some time. Adam Smith wrote: “Projects of mining, instead of replacing the capital employed in them, together with the ordinary profits of stock, commonly absorb both capital and stock. They are the projects, therefore, to which of all others a prudent law-giver, who desired to increase the capital of his nation, would least chuse to give any extraordinary encouragement... ” (1776, p. 562). Perhaps abetted by the intuition associating “primary ” products with “primitive ” modes of production, coupled with the Ricardian-Malthusian premise that nonrenewable resources are fated to diminish over time (since as gifts of nature they cannot be replenished), the impression has been prevalent for at least two centuries that economic progress entails moving away from natural resources into sectors based on knowledge, skills, capital and technology. Recent studies in development economics add quantitative rigor to this impression. Summarizing extensive econometric research, Richard M. Auty writes: “Since the 1960s the resource-rich developing countries have underperformed compared with the resource-deficient economies ” (1998, p. viii). Sachs and Warner (1997) report that the underlying adverse effect of a natural resource environment on per capita GDP growth is robust in the face of tests tha