Raw material wealth and economic mobility: A world-historical perspective

This research is motivated by China's increasingly important role as a raw material consumer in the world economy. China's demand for raw materials has revived the debate about the costs and benefits of raw material extraction, and has renewed interest in the "resource curse" hypothesis that raw material production is associated with underdevelopment. However, much of the "resource curse" debate focuses on the twentieth century and does not give sufficient attention to historical trends in the relationship between natural resource wealth and development. This research focuses on answering two questions: 1) the contemporary question of how China's increasing role as a raw material consumer will affect the development outcomes of raw material producing countries; and 2) the historical question of the relationship between natural resource wealth and economic development. In answering these questions, I begin by providing a thorough critique of the empirical basis of the "resource curse" hypothesis by examining trends in the terms of trade since the beginning of the nineteenth century; and by compiling and examining a dataset measuring the relationship between economic outcomes and concentration in raw material production since 1870. My analysis clearly refutes the idea that there is a "resource curse" from a long-term perspective and shows that raw material producers experienced positive development outcomes during the nineteenth century and the beginning of the twenty-first century, whereas development outcomes were generally negative during the twentieth century. Using narrative analysis, I show that this is because the world economy was organized around the British economy during the nineteenth century which maintained trade and investment policies that complemented the development goals of raw material producing countries; whereas during the twentieth century, the world economy was organized around the United States which presented a competitive trade environment to other raw material producing countries. China is compared to both Britain and the United States and it is shown that China exhibits similarities to the British economy of the nineteenth century. Hence, China's emergence as a global economic power seems to be complementary to raw material producing countries and may enhance their development opportunities in the coming years.