Do energy natural endowments matter? New Zealand and Uruguay in a comparative approach (1870-1940)

Settler economies are characterized by abundant natural resources, but natural capital is not homogeneous between countries and it can produce different consequences in terms of economic performance. This paper discusses the effect of natural resources on economic performance as part of the debate about the “curse of natural resources hypothesis”. We consider energy natural resources and focus on two settler societies, New Zealand and Uruguay. There is very little literature about the economic development of settler economies that identifies differences within the “club” countries that have different natural resources. We look for differences in energy natural endowments, basically coal and suitable conditions for hydroelectric generation, to explain at least partially the different welfare levels between the two economies. In the nineteenth century and the early decades of the twentieth century, New Zealand and Uruguay were similar in many ways such as production structure, movements in production factors and insertion in international markets, but there were huge differences in income per capita levels. To explain this, we need to study other aspects of the economic system. The analytical framework associated with the curse of natural resources offers some interesting lines of argument for our inquiry. The conformation of a “modern” production structure requires there to be sufficient energy supply at competitive costs, to justify exploiting the corresponding natural resources. Our analysis shows that New Zealand’s better performance in coal production and better natural conditions to generate electric energy at low cost –thus offering energy at low prices– explain those differences. New Zealand's advantage in energy endowments at least partially explains the development of a dairy sector, certain energy-intensive manufactures and a more efficient use of railways