The Micro-Foundations of the Resource Curse: Oil Ownership and Local Economic Well-Being in Sub-Saharan Africa
Publisher: Kostanz Online Publication System
Author(s): Tim Wegenast, Arpita Khanna, and Gerald Schneider
Date: 2018
Topics: Basic Services, Conflict Causes, Extractive Resources, Governance
Empirical tests of the “resource curse” thesis have provided inconclusive evidence for the core claim that natural resource abundance lowers economic growth. Some macro-level studies argue that the key expectation holds if one controls for the level of democracy. However, even if we account for the quality of institutions, some democratic resource-rich countries experience low growth rates. We argue in line with a new contest model and recent findings that these anomalies are a consequence of different control rights regimes and that state-controlled resource production stimulates local income more than privately-controlled extraction. Our micro-level arguments are tested using information on local economic activity and a new data set that establishes the control rights over hydrocarbons at the individual extraction site of the resource. Relying on this novel data, we perform district and grid-level analyses of sub-Saharan Africa covering the period from 1997 to 2014. Our multi-level and two-way fixed effects linear models show that the presence of domestic national oil companies is associated with increased local growth, while international oil companies show no effect on economic development. We also find that state-controlled oil production particularly furthers local economic well-being under democratic institutions, good governance and low levels of corruption.