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Oil price shocks, income and democracy

We examine the effect of oil price fluctuations on democratic institutions over the 1960-2007 period. We also exploit the very persistent response of income to oil price fluctuations to study the effect of persistent (oil price-driven) income shocks on democracy. Our results indicate that countries with greater net oil exports over GDP see improvements in democratic institutions following upturns in international oil prices. We estimate that a 1 percentage point increase in per capita GDP growth due to a positive oil price shock increases the Polity democracy score by around 0.2 percentage points on impact and by around 2 percentage points in the long run. The effect on the probability of a democratic transition is around 0.4 percentage points.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1351.

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Date of creation: Feb 2011
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Handle: RePEc:upf:upfgen:1351
Contact details of provider: Web page: http://www.econ.upf.edu/

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