Some new evidence from Brazil:
Municipalities that receive oil windfalls report significant increases in spending on infrastructure, education, health, and transfers to households. However, the windfalls do not trickle down and much of the money goes missing.
Indeed, oil revenues increase the size of municipal workers’ houses but not the size of other residents’ houses.
Francesco Caselli and Guy Michaels in VoxEU.
Meanwhile, on the other side of the planet, Dan Treisman suggests our fears shouldn’t be exaggerated:
Evidence from around the world suggests that for countries like Russia with an established oil industry, even large increases in the scale of mineral incomes have only a minor effect on the political regime. In addition, Russia—a country with an industrialized economy, a highly educated, urbanized population, and an oil sector that remains majority private-owned—is unlikely to be susceptible to most of the hypothesized pernicious effects of resource dependence.
3 Responses
Yeah, I’m skeptical about this statement about Russia. The oil industry may be privatized, but the natural gas extraction and transit industry is still held heavily captive by the state.
Probably has a lot to do whether the countries can collect and spend the oil money in a transparent manner. In the case of Russia, I find the hypothesis rather suspect.
The gas industry in Russia has only emerged to be a world player in the last couple of decades, so I’m not sure how “established” that is considered to be. At best, you might be able to say that corruption is not getting any worse. But whether that’s because o&g has held further corruption back, or if that’s simply because the level of corruption has hit the ceiling, is pretty difficult to see.
And geo-political power plays in Russia’s backyard? Are those not considered acts that “undermine democracy”?
Dear Chris,
I am a political scientist, and a public official, in the Brazilian state of Rio de Janeiro, which produces about 80% of all oil in Brazil. We are dealing with many issues close to the curse of natural resourses. Among other reasons, because the flow of royalties is a powerful incentive to bad governance, since it allows even bad mayors or governors to have plenty of money at their disposal.
It is a coincidence, but I have just wrote in my blog about that. Alas, the text is in Portuguese, but the ideas are very much like the ones you highlighted.
All the best,