Do Oil Windfalls Improve Living Standards? Evidence from Brazil
01 Jan 2013-American Economic Journal: Applied Economics (American Economics Association)-Vol. 5, Iss: 1, pp 208-238
TL;DR: In this article, the authors use variation in oil output among Brazilian municipalities to investigate the effects of resource windfalls on government behavior, finding that social transfers, public good provision, infrastructures, and household income increase less than one might expect given the higher reported spending.
Abstract: We use variation in oil output among Brazilian municipalities to investigate the effects of resource windfalls on government behavior. Oil-rich municipalities experience increases in revenues and report corresponding increases in spending on public goods and services. However, survey data and administrative records indicate that social transfers, public good provision,infrastructure, and household income increase less (if at all) than one might expect given the higher reported spending.
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TL;DR: This paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources and offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.
Abstract: Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.
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TL;DR: In this article, the authors exploit exogenous price shocks in inter-national commodity markets and a rich dataset on civil war in Colombia to assess how dierent income shocks aect armed conflict.
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Abstract: Since 2001, hundreds of academic studies have examined the “political resource curse,” meaning the claim that natural resource wealth tends to adversely affect a country's governance. There is now robust evidence that one type of mineral wealth, petroleum, has at least three harmful effects: It tends to make authoritarian regimes more durable, to increase certain types of corruption, and to help trigger violent conflict in low- and middle-income countries. Scholars have also made progress toward understanding the mechanisms that lead to these outcomes and the conditions that make them more likely. This essay reviews the evidence behind these claims, the debates over their validity, and some of the unresolved puzzles for future research.
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TL;DR: In this article, a strong positive relationship between natural resource exports and urbanization in a sample of 116 developing nations over the period 1960-2010 was found. But, although the development literature often assumes that urbanization is synonymous with industrialization, patterns differ markedly across developing countries.
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452 citations
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TL;DR: The authors showed that countries with a high ratio of natural resource exports to GDP tended to have low growth rates during the subsequent period 1971-89, even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables.
Abstract: One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies. In this paper we show that economies with a high ratio of natural resource exports to GDP in 1971 (the base year) tended to have low growth rates during the subsequent period 1971-89. This negative relationship holds true even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables. We explore the possible pathways for this negative relationship by studying the cross-country effects of resource endowments on trade policy, bureaucratic efficiency, and other determinants of growth. We also provide a simple theoretical model of endogenous growth that might help to explain the observed negative relationship.
3,511 citations
TL;DR: In this article, the authors present a theoretical analysis of the Dutch Disease, the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors, both by directly and indirectly.
Abstract: This paper presents a theoretical analysis of the 'Dutch Disease': the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors, both by directly bi ...
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TL;DR: The authors examined three aspects of this "oil impedes democracy" claim and found that oil exports are strongly associated with authoritarian rule, and that other types of mineral exports have a similar antidemocratic effect, while other commodity exports do not.
Abstract: Some scholars suggest that the Middle East's oil wealth helps explain its failure to democratize. This article examines three aspects of this “oil impedes democracy” claim. First, is it true? Does oil have a consistendy antidemocratic effect on states, once other factors are accounted for? Second, can this claim be generalized? Is it true only in the Middle East or elsewhere as well? Is it true for other types of mineral wealth and other types of commodity wealth or only for oil? Finally, if oil does have antidemocratic properties, what is the causal mechanism?The author uses pooled time-series cross-national data from 113 states between 1971 and 1997 to show that oil exports are strongly associated with authoritarian rule; that this effect is not limited to the Middle East; and that other types of mineral exports have a similar antidemocratic effect, while other types of commodity exports do not.The author also tests three explanations for this pattern: a “rentier effect,” which suggests that resource-rich governments use low tax rates and patronage to dampen democratic pressures; a “repression effect,” which holds that resource wealth enables governments to strengthen their internal security forces and hence repress popular movements; and a “modernization effect,” which implies that growth that is based on the export of oil and minerals will fail to bring about die social and cultural changes that tend to produce democratic government. He finds at least limited support for all three effects.
2,795 citations
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TL;DR: The authors found that the direction of foreign aid is dictated by political and strategic considerations, much more than by the economic needs and policy performance of the recipients, and that countries that democratize receive more aid, ceteris paribus.
Abstract: This paper studies the pattern of allocation of foreign aid from various donors to receiving countries. We find considerable evidence that the direction of foreign aid is dictated by political and strategic considerations, much more than by the economic needs and policy performance of the recipients. Colonial past and political alliances are the major determinants of foreign aid. At the margin, however, countries that democratize receive more aid, ceteris paribus. While foreign aid flows respond more to political variables, foreign direct investments are more sensitive to economic incentives, particularly property rights in the receiving countries. We also uncover significant differences in the behavior of different donors.
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TL;DR: This article showed that countries with a high ratio of natural resource exports to GDP tended to have low growth rates during the subsequent period 1971-89, even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables.
Abstract: One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies. In this paper we show that economies with a high ratio of natural resource exports to GDP in 1971 (the base year) tended to have low growth rates during the subsequent period 1971-89. This negative relationship holds true even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables. We explore the possible pathways for this negative relationship by studying the cross-country effects of resource endowments on trade policy, bureaucratic efficiency, and other determinants of growth. We also provide a simple theoretical model of endogenous growth that might help to explain the observed negative relationship.
2,317 citations