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Fata Morganas In Oil-Rich, Institution-Poor Economies

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  • Jodie Gatti

    (Department of Economics and Public Policy, University of Alaska Anchorage)

  • Gavin Triplet

    (Department of Economics and Public Policy, University of Alaska Anchorage)

  • Alexander James

    (Department of Economics and Public Policy, University of Alaska Anchorage)

Abstract

Oil-dependent countries suffer from bad institutions, but is oil the culprit? Herein we argue that weak institutions lead to resource dependence, and that this form of reverse causality does not merely bias the estimated effect of oil dependence, it is solely responsible for it. We highlight this point in a novel way. We first document a robust inverse relationship between oil dependence and institutional quality across countries. We then re-estimate this relationship holding the value of resource production constant across all countries. The two sets of results are statistically indifferent, meaning that variation in GDP fully explains why oil-dependent economies suffer from bad institutions. This remarkable finding offers broad implications that reach beyond the resource-development literature and speaks generally to the practice of scaling explanatory variables by GDP.

Suggested Citation

  • Jodie Gatti & Gavin Triplet & Alexander James, 2018. "Fata Morganas In Oil-Rich, Institution-Poor Economies," Working Papers 2018-01, University of Alaska Anchorage, Department of Economics.
  • Handle: RePEc:ala:wpaper:2018-01
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    More about this item

    Keywords

    Resource Curse; Resource-Dependent Countries; Estimation Bias;
    All these keywords.

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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