Introduction

What is the impact of productive natural resources on national income? The conventional wisdom in U.S. and British economic history is that natural resources are good for prosperity, even crucial (Wright 1990; Wrigley 2004; Allen 2008). In fact, the greater natural resources available to Great Britain and Western Europe is arguably one of the key reasons for their divergence from China in the early modern period (Pomeranz 2000).

Although compelling because natural resources seem to raise income in a mechanical way, this view faces some striking empirical puzzles. The first set concerns the “Dutch Disease” and the impact of natural-gas discoveries on the competitiveness of manufacturing in the Netherlands. The second set suggests a more general negative correlation between economic growth and the importance of natural resources in the economy (Sachs and Warner 1995). Since then, such findings have expanded into a whole literature on the “resource curse,” replete with detailed case studies as well as econometric results. Indeed, Sachs and Warner (2001, pp. 828, 837) argued: