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Inflated Expectations and Natural Resource Booms: Evidence from Kazakhstan

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Listed author(s):
  • Gerhard Toews
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    Abstract

    In this paper we identify the effect of an oil price boom on households' satisfaction with income. In a natural experiment the increase in the oil price is used as an exogenous shock affecting households located in the oil and gas rich region of Kazakhstan. to evaluate the effect we use the Household Budget Survery of Kazakhstan from 2001 to 2005, a quarterly, unbalanced panel of 12,000 households. An important feature of this survey is that household heads were asked to report their "satisfaction with household income" on a scale from 1 to 5. Our results suggest that a 10% increase in the oil price decreased household's satisfaction with income by 2% with a lag of two quarters. We argue that this is due to peoples' inflated expectations regarding their income. this result highlights the importance of managing expectations in a rapidly changing economic environment.

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    File URL: http://www.oxcarre.ox.ac.uk/images/stories/papers/ResearchPapers/oxcarrerp2013109.pdf
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    Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 109.

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    Date of creation: 2013
    Handle: RePEc:oxf:oxcrwp:109
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    Keywords: Resource Booms; Conflicts; Reference Point Formation;

    Find related papers by JEL classification:

    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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    8. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
    9. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    10. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, vol. 94(3), pages 730-740, June.
    11. Akram Esanov & Karlygash Khuralbayeva, 2010. "Riccardian Curse of the Resource Boom: The case of Kazakhstan 2000-2008," OxCarre Working Papers 043, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    12. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
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