Resource Curse or Malthusian Trap? Evidence from Oil Discoveries and Extractions

Abstract

This paper studies the effects of oil rent on development using a unique panel dataset describing worldwide oil discoveries and extractions. First, we revisit the so-called curse of oil, which contends that oil rent hinders economic development. Exploiting cross-country variations in the timing of oil discoveries and the size of initial oil in place, we find that, contrary to the oil-curse hypothesis, there is little robust evidence of a negative relationship between oil endowment and economic performance, even after controlling for initial income. Second, based on both crosscountry and panel evidence, we find a robust association between oil abundance and population growth, which might suggest a Malthusian effect which reduces the economic growth measured in per capita GDP. We find some evidence that oil abundance increases fertility. On an accounting basis, however, migration plays an even more prominent role in explaining the oilinduced population growth. Furthermore, we show that focusing on material gain may understate the welfare gain from oil abundance, because relative to non-oil countries, oil-rich countries gain more in health improvements. These results suggest that despite the positive oil effect on population growth, oil-rich countries do not suffer from the Malthusian trap, and overall oil abundance is an economic blessing rather than a curse.

Natural Resource Booms and Inequality: Theory and Evidence*

“…However, such jobs are often created to buy political support and might come at a cost of lower growth (Robinson et al , 2006). Resource windfalls might also lead to an influx of low‐skilled migrant workers (Cotet and Tsui, 2009), which could increase inequality if resource rents are primarily distributed to national citizens.…”

Income and Population Growth

“…Cotet and Tsui () investigate whether oil discoveries affect countries' population size and health outcomes. They compare changes in these outcomes in countries with and without major oil discoveries around the 1960s.…”

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

“…First, because different countries discovered oil in different years, the comparison of cross‐sectional oil reserves at a given point in time might understate the extent of oil abundance for those countries that discovered and started producing oil earlier . Second, Cotet and Tsui () have shown that oil has significant positive effects on population growth through higher fertility and more migrants, so that normalizing oil by current population imparts an upward bias to estimates of the impact of oil on economic growth.…”

“…Following the literature, X i ′ is a set of control variables that includes the absolute value of latitude, dummies for East Asia (including the Pacific) and sub‐Saharan African countries, and ethnic and religious fractionalization . Following Cotet and Tsui (), we also control for the fraction of the population that is Muslim, because many oil‐rich countries are Muslim countries experiencing high population growth over the sample period. Because countries might have different peak discovery years, we also include time (the decade, in particular) fixed effects in our regressions.…”