Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments
Oil discoveries can constitute a major positive and exogenous shock to economic activity, but the resource curse hypothesis would suggest they might also be detrimental to growth over the long run. This paper utilizes a new methodology for estimati...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/517431499697641884/Evidence-for-a-presource-curse-oil-discoveries-elevated-expectations-and-growth-disappointments http://hdl.handle.net/10986/27643 |
| Summary: | Oil discoveries can constitute a major
positive and exogenous shock to economic activity, but the
resource curse hypothesis would suggest they might also be
detrimental to growth over the long run. This paper utilizes
a new methodology for estimating growth underperformance to
examine the extent to which discoveries depress the growth
path of a country following a discovery and prior to
production starting. The study finds causal evidence of a
significant negative effect on short-run growth and growth
relative to counterfactual forecast growth in countries with
weak institutions, creating growth disappointments prior to
private and public resource windfalls. This effect is termed
the presource curse. For a giant oil or gas discovery in
1988-2010, the study estimates an average growth
disappointment effect of 0.83 percentage points, measured as
the average annual gap between forecast and actual growth
over the five years following a discovery. Further, the
estimated effect varies by the size of the discovery,
increasing to a 1.77 percentage points gap in the case of
super giant discoveries. The estimated effect is inversely
related to the quality of political institutions, and driven
by countries with lower institutional quality at the time of
the discovery, consistent with the similar long-run results
documented in the resource curse literature. For countries
with below-threshold institutional quality, the growth
disappointment effect is larger, measured as 1.35 percentage
points in annual terms. There is no measured growth
disappointment effect for countries with strong
institutions. Using the synthetic control method, we confirm
our findings for a selection of countries above and below
the institutional quality threshold. The findings suggest
that studies of the resource curse that focus only on the
effects of resource exploitation or examine only long-run
growth effects may overlook important short-run growth
disappointments following discoveries, and the way countries
respond to news shocks. |
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