New evidence on the oil-democracy nexus utilising the Varieties of Democracy data

This study re-examines the oil and democracy nexus, which is central to the political resource curse by applying the latest democracy dataset, V-DEM, into the analysis in a sample of 100 Developing Countries, over the period 1935-2014. Our study is a contribution to this taxonomic literature where we improve on previous studies not only by employing a novel democratic data source, but also because we use two definitions of oil wealth which renders our results more robust, besides delineating the sample into small and large oil endowments and looking into the experience of two regions, Latin America and the Middle East. Our analysis highlights nuances in the oil-democracy relationship. First, that there is prima facie evidence for a political resource curse if we do not control for pre-existing institutions that promote democracy. Second, once we decompose the sample into small and large oil endowments, the political resource curse vanishes, and also for Latin America, whilst for oil dependent economies in the Middle East and North Africa it still remains. Third, after controlling for pre-existing institutional quality, measured in our case by the rule of law, chances of the political resource curse seem to diminish. We also calculate threshold levels for the quality of the rule of law to be at in society before they turn a curse into a blessing. The converse is equally true, a deterioration in the quality and pervasiveness of the rule of law will cause the political resource curse to reappear, and democratic quality will decline.