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The Long-Run Effects of Oil Wealth on Development: Evidence from Petroleum Geology

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  • Traviss Cassidy

Abstract

We estimate the long-run effects of oil wealth on development by exploiting spatial variation in sedimentary basins—areas where petroleum can potentially form. Instrumental variables estimates indicate that oil production impedes democracy and fiscal capacity development, increases corruption, and raises GDP per capita without significantly harming the non-resource sectors of the economy. We find no evidence that oil production increases internal armed conflict, coup attempts, or political purges. In several specifications failure to account for endogeneity leads to substantial underestimation of the adverse effects of oil, suggesting that countries with higher-quality political institutions and greater fiscal capacity disproportionately select into oil production.

Suggested Citation

  • Traviss Cassidy, 2019. "The Long-Run Effects of Oil Wealth on Development: Evidence from Petroleum Geology," The Economic Journal, Royal Economic Society, vol. 129(623), pages 2745-2778.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:623:p:2745-2778.
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    File URL: http://hdl.handle.net/10.1093/ej/uez009
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    Cited by:

    1. Simplice A. Asongu & Nicholas M. Odhiambo, 2022. "The paradox of governance and natural resource rents in Sub-Saharan Africa," Journal of Africa SEER Centre(ASC) 22/010, Africa SEER Centre(ASC).
    2. Indra de Soysa & Tim Krieger & Daniel Meierrieks, 2020. "Oil Wealth and Property Rights," CESifo Working Paper Series 8319, CESifo.
    3. Bergougui, Brahim & Murshed, Syed Mansoob, 2020. "New evidence on the oil-democracy nexus utilising the Varieties of Democracy data," Resources Policy, Elsevier, vol. 69(C).
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2024. "Governance quality and trade performance in Sub‐Saharan Africa," World Affairs, John Wiley & Sons, vol. 187(1), pages 78-93, March.
    5. James Cust & Torfinn Harding & Pierre-Louis Vézina, 2019. "Dutch Disease Resistance: Evidence from Indonesian Firms," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1205-1237.
    6. Ongo Nkoa, Bruno Emmanuel & Tadadjeu, Sosson & Njangang, Henri, 2023. "Rich in the dark: Natural resources and energy poverty in Sub-Saharan Africa," Resources Policy, Elsevier, vol. 80(C).
    7. Dragomirescu-Gaina, Catalin & Fassas, Athanasios P. & Philippas, Dionisis, 2024. "A Chinese clout on energy exports some countries cannot shake off," Energy Economics, Elsevier, vol. 134(C).
    8. Jubril Animashaun & Ada Wossink, 2020. "Patriarchy, Pandemics and the Gendered Resource Curse Thesis: Evidence from Petroleum Geology," Economics Discussion Paper Series 2006, Economics, The University of Manchester.
    9. Cassidy, Traviss, 2017. "How Forward-Looking Are Local Governments? Evidence from Indonesia," MPRA Paper 97776, University Library of Munich, Germany, revised 01 Jun 2019.
    10. de Soysa, Indra & Krieger, Tim & Meierrieks, Daniel, 2022. "Oil and property rights," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 79, pages 1-13.
    11. Paul Fenton Villar, 2022. "Is there a Mineral-Induced ‘Economic Euphoria’?: Evidence from Latin America," Journal of Happiness Studies, Springer, vol. 23(4), pages 1403-1430, April.
    12. Abman, Ryan & Longbrake, Gabrial, 2023. "Resource development and governance declines: The case of the Chad–Cameroon petroleum pipeline," Energy Economics, Elsevier, vol. 117(C).
    13. Nguyen, Minh-Hoang, 2021. "Resource curse - Wikipedia," OSF Preprints 36uyb, Center for Open Science.
    14. Sylvain B. Ngassam & Sandrine G. Douanla & Simplice A. Asongu, 2025. "Natural Resource and Food Import Dependence of Africa: Can Democracy Slowdown Dependence?," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(3), pages 4204-4226, June.
    15. Hamang, Jonas, 2024. "Economic development and known natural resource endowment: Discovery rate differentials of oil," Journal of Development Economics, Elsevier, vol. 170(C).
    16. Bybert Moudjare Helgath, "undated". "Oil rent and the quality of institutions in Sub-Saharan African countries: Evidence using the dynamic panel threshold model," Review of Socio - Economic Perspectives 202192, Reviewsep.
    17. Janus, Thorsten, 2024. "Does export underreporting contribute to the resource curse?," World Development, Elsevier, vol. 181(C).
    18. Jonas Hveding Hamang, 2022. "Local economic development and oil discoveries," Working Papers No 03/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    19. Cassidy, Traviss, 2017. "Revenue Persistence and Public Service Delivery," MPRA Paper 114464, University Library of Munich, Germany, revised 06 Sep 2022.
    20. World Bank, 2023. "Global Economic Prospects, June 2023," World Bank Publications - Books, The World Bank Group, number 39846, April.
    21. Tadadjeu, Sosson & Njangang, Henri & Woldemichael, Andinet, 2023. "Are resource-rich countries less responsive to global warming? Oil wealth and climate change policy," Energy Policy, Elsevier, vol. 182(C).
    22. Jubril Animashaun & Ada Wossink & Katsushi S. Imai, 2023. "Colonialism, Institutional Quality, and the Resource Curse," Discussion Paper Series DP2023-19, Research Institute for Economics & Business Administration, Kobe University.
    23. Thorsten Janus, 2023. "Technology adoption in autocratic economies: The role of fiscal capacity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(4), pages 355-371, September.

    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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