Oil, Growth, and Health: What Does the Cross‐Country Evidence Really Show?*

Abstract

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid‐1980s. By exploiting cross‐country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long‐run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil‐rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil‐led health improvements are more pronounced in non‐democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.

Are natural resources bad for health?

“…Consistent with the findings of Cotet and Tsui (2013), hydrocarbonresources tend to be associated with gains in longevity in energyintensive economies (column 1a, b). An increase in hydrocarbon rents (as a percentage of GDP) by 10% is associated with about 5.9% increase in life expectancy (column 1a).…”

“…That is, in line with the findings of Cotet and Tsui (2013), nondemocratic countries seem to extend public health expenditures upon the receipt of larger energy rents (β 2 ¼ 0:049Þ. Only in the case of autocratic countries, does greater energy share in the economy result in lower per capita health spending; note the significantly negative coefficient of energy rent only when it is interacted with autocracy (column 1).…”

“…The one study that comes close to our objective in this paper is Cotet and Tsui (2013). They indeed find that oil wealth has led to better quality of life through significant reductions in infant mortality and gains in longevity; especially in less democratic oil-rich countries where the resource is concentrated in the hands of the ruling elite and initial health conditions were severely poor.…”

“…This gives rise to the prediction that natural resources may have contributed more towards improving healthcare services and conditions in nondemocratic countries where the resource is controlled by the ruling elite (Cotet and Tsui, 2013). Indeed, Beblawi (1987) identifies Kuwait, as the first oil-Gulf country to become a welfare state, sharing the oil receipts with the population.…”

“…Enjoying a higher natural resource wealth allows increasing spending on healthcare 2 (Acemoglu et al, 2009), which should translate into higher economic growth and better quality of life (Cotet and Tsui, 2013). In addition, sustainable development in economies that depend on depleting a natural resource to survive requires not only investing the resource receipts in building financial and physical assets to diversify the economy's sources of income, but also investing in human capital (e.g., health and education) to ameliorate the (negative) effect of resource depletion in the future (Bravo-Ortega and De Gregorio, 2005).…”