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...
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World Bank, Washington, DC
2017
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| 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 |
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okr-10986-276432021-06-08T14:42:47Z Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments Cust, James Mihalyi, David OIL REVENUE RESOURCE CURSE ECONOMIC GROWTH FORECASTING INSTITUTIONS RESOURCE WINDFALL 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. 2017-07-19T18:08:35Z 2017-07-19T18:08:35Z 2017-07 Working Paper 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 English en_US Policy Research Working Paper;No. 8140 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
OIL REVENUE RESOURCE CURSE ECONOMIC GROWTH FORECASTING INSTITUTIONS RESOURCE WINDFALL |
| spellingShingle |
OIL REVENUE RESOURCE CURSE ECONOMIC GROWTH FORECASTING INSTITUTIONS RESOURCE WINDFALL Cust, James Mihalyi, David Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| relation |
Policy Research Working Paper;No. 8140 |
| description |
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. |
| format |
Working Paper |
| author |
Cust, James Mihalyi, David |
| author_facet |
Cust, James Mihalyi, David |
| author_sort |
Cust, James |
| title |
Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| title_short |
Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| title_full |
Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| title_fullStr |
Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| title_full_unstemmed |
Evidence for a Presource Curse? : Oil Discoveries, Elevated Expectations, and Growth Disappointments |
| title_sort |
evidence for a presource curse? : oil discoveries, elevated expectations, and growth disappointments |
| publisher |
World Bank, Washington, DC |
| publishDate |
2017 |
| url |
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 |
| _version_ |
1764465627383201792 |