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Institutions and the Location of Oil Exploration

  • James Cust
  • Torfinn Harding

The spatial distribution of oil is determined by natural geography alone. However, we show that the distribution of oil exploration is affected by the quality of countries’ institutions. A global data set on the precise location of oil wells and national borders allows for a regression discontinuity design and causal inference. Crossing a national border, moving from the average worse to average better institutional quality, generates a positive jump in the predicted number of wells by 150% in the sample of developing countries. Correspondingly, a one standard deviation increase in institutional quality increases the likelihood of drilling by about 250%. The findings underscore that proved oil reserves are an endogenous economic outcome and lend support to the hypothesis that institutions are a fundamental determinant of economic performance.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number OxCarre Research Paper 127.

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Date of creation: 02 Dec 2013
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Handle: RePEc:oxf:wpaper:oxcarre-research-paper-127
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