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An Economic Impact Analysis of Oil and Natural Gas Development in the Permian Basin


  • Wang, Haoying


This study analyzes the economic impact of oil and natural gas development in the Permian Basin with a focus on the NM part of the Basin. The analysis looks at the impacts on state revenue, local employment and income levels. Several existing economic impact reports from other states have been criticized by the peer-review literature that the impact estimates are very likely overstated due to questionable methodologies. In this analysis, a panel data regression model with county fixed effects and year effects is deployed to identify the impact of oil and natural gas production on employment and per job annual income at the county level. The analysis covers 62 counties (12 counties in NM and 50 counties in TX) for the time period of 1998 – 2016. The main findings of the analysis can be summarized as: 1. Over the last decade, according to different estimates the state revenue generated by the oil and natural gas industries in NM has been consistently exceeding one billion dollars per year. In the meantime, a large amount of intensive direct investment has been capitalized into the southeast NM. 2. In aggregate, per job annual income (in the real term) and the number of jobs have both experienced significant growth in the last two decades of active oil and natural gas development in the region. It is reasonable to speculate that much of the growth can be attributed to the ongoing energy development. 3. It is estimated that on average additional one million BBLs of oil equivalent production brings 54 jobs and about $170 (2015 dollar) extra annual income per job (or a 0.5% increase) in the county of production. 4. The intensive oil and natural gas production around the center of the basin (Lea County and Eddy County in NM) have had significant spatial spillover effects to the surrounding counties. Depending on the distance from the given county to the center of the Basin and for additional one million BBLs of oil equivalent production, the employment effect ranges from 35 to 10 jobs and the income effect ranges from $170 to $90 (2015 dollar) extra annual income per job. The paper also provides details on methodology and guidelines on how to interpret estimation results. The estimated economic impact coefficients can be used for prediction purpose with available future production scenarios. The paper includes instructions and suggestions on how the prediction may proceed.

Suggested Citation

  • Wang, Haoying, 2018. "An Economic Impact Analysis of Oil and Natural Gas Development in the Permian Basin," MPRA Paper 89280, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:89280

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    References listed on IDEAS

    1. Kinnaman, Thomas C., 2011. "The economic impact of shale gas extraction: A review of existing studies," Ecological Economics, Elsevier, vol. 70(7), pages 1243-1249, May.
    2. Wang, Haoying, 2018. "The Spatial Structure of Farmland Values: A Semiparametric Approach," Agricultural and Resource Economics Review, Cambridge University Press, vol. 47(3), pages 568-591, December.
    3. Weber, Jeremy G., 2014. "A decade of natural gas development: The makings of a resource curse?," Resource and Energy Economics, Elsevier, vol. 37(C), pages 168-183.
    4. Tsvetkova, Alexandra & Partridge, Mark D., 2016. "Economics of modern energy boomtowns: Do oil and gas shocks differ from shocks in the rest of the economy?," Energy Economics, Elsevier, vol. 59(C), pages 81-95.
    5. Agerton, Mark & Hartley, Peter R. & Medlock, Kenneth B. & Temzelides, Ted, 2017. "Employment impacts of upstream oil and gas investment in the United States," Energy Economics, Elsevier, vol. 62(C), pages 171-180.
    6. James Feyrer & Erin T. Mansur & Bruce Sacerdote, 2017. "Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution," American Economic Review, American Economic Association, vol. 107(4), pages 1313-1334, April.
    7. Hunt Allcott & Daniel Keniston, 2018. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 695-731.
    8. Lee, Jim, 2015. "The regional economic impact of oil and gas extraction in Texas," Energy Policy, Elsevier, vol. 87(C), pages 60-71.
    9. Weber, Jeremy G., 2012. "The effects of a natural gas boom on employment and income in Colorado, Texas, and Wyoming," Energy Economics, Elsevier, vol. 34(5), pages 1580-1588.
    10. Haggerty, Julia & Gude, Patricia H. & Delorey, Mark & Rasker, Ray, 2014. "Long-term effects of income specialization in oil and gas extraction: The U.S. West, 1980–2011," Energy Economics, Elsevier, vol. 45(C), pages 186-195.
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    More about this item


    Oil and Natural Gas; Permian Basin; Economic Impact; New Mexico;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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