Natural resource experts believe that resources tend to be overused in countries with weak ownership rights. In such countries, where there is a high risk of state expropriation or unexpected taxes, and the courts are ineffective, natural resources will be exploited as quickly as possible. On the other hand, growth economists believe weak property rights forestall the necessary investment needed to exploit natural resources. A recent study argues that both views are right, depending on the type of resource.
The study measured ownership rights across 125 countries between 1955 and 1988. According to the authors, the relationship between ownership rights and resource use depends on the way in which resources are extracted. Resources exploited primarily through labour are depleted with weak property rights. Resources exploited with capital investments are depleted with strong property rights.
For instance, the study found that:
Thus labour intensive resource extraction takes place at an accelerated rate where property rights are insecure, as is the case in the Amazon forest, and the stocks are depleted. But stocks will increase relative to production where property rights are respected. The production of resources that require a lot of capital, such as oil, will accelerate under secure property rights, while these resources will lay fallow where rights are insecure.
Source: How Ownership Risk Affects the Use of Natural Resources, Economic Intuition, Fall 2000; based on Henning Bohn and Robert T. Deacon, “Ownership Risk, Investment, and the Use of Natural Resources,” American Economic Review, June 2000.
For more on International Economic Growth http://www.ncpa.org/pi/internat/intdex3.html
