Country A and B : they have identical physical endowments of a key natural resource.
Country A : Any profits made from extracting that resources are subject to confiscation by the government.
Country B : There is no such risk.
** How does the risk of expropriation affect the economic endowment of the two nations?
** In which nation are people richer?
The country B would be richer than the country A because there is no risk of confiscation by the government in the country B, which is based on the rule of law. When the legal system causes the risk of expropriation, it would discourage people to make long-term fixed investment, contributing to the negative effects on the economic growth and the standard of living for the citizens. This situation may be common in the countries ruled by civil law. On the other hand, under the common law system, people are willing to invest their money for long-term assets or business when their property is protected, which would be expected that the economic activity and growth is promoted.
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