Exogenous Resource Shocks and Economic Freedom
An extensive literature has identified the tendency of natural resource rents to inhibit the development of quality institutions, though few studies have investigated the effects on economic institutions. We use a data set of plausibly exogenous “giant” oil field discoveries as a means of testing whether the presence of large resource rents impacts a country’s economic institutions. We find evidence of short run effects of these discoveries on the size of government spending, but find no evidence of an effect on economic institutions in general. At least for this set of resource discoveries, there is no resource curse for economic institutions.
Keywordsresource curse oil economic freedom economic institutions
JEL ClassificationD72 O13 P10
- Busse, M and Gröning, S. 2013: The resource curse revisited: governance and natural resources. Public Choice 154: 1–20. doi: 10.1007/s11127-011-9804-0.
- Campbell, ND and Snyder, TJ. 2012: Economic growth, economic freedom, and the resource curse. Journal of Private Enterprise 28: 23–46.Google Scholar
- Cohen, D and Leker, L. 2014: Health and education: another look with the proper data (CEPR Discussion Paper No. 9940). C.E.P.R. Discussion Papers.Google Scholar
- Cotet, AM and Tsui, KK. 2013: Oil and conflict: what does the cross country evidence really show? American Economic Journal: Macroeconomics 5: 49–80. http://www.aeaweb.org/aej-macro/.
- Cummings, JT. 2000: Economic freedom indices: their use as tools for monitoring and evaluation. SCS Working Paper 00/01.Google Scholar
- Faria, HJ and Montesinos, HM. 2009: Does economic freedom cause prosperity? An IV Approach. Public Choice 141: 103–127. http://link.springer.com/journal/volumesAndIssues/11127.
- Friedman, M. 1962: Capitalism and freedom. Chicago, IL: University of Chicago Press.Google Scholar
- Gwartney, J, Lawson, R and Hall, J. 2016: Economic freedom of the world: 2016 annual report. Vancouver, BC: Fraser Institute.Google Scholar
- Hall, JC. 2016: Institutional convergence: exit or voice? Journal of Economics and Finance 40: 829–840. doi: 10.1007/s12197-015-9345-3.
- Hayek, FA. 1960: The constitution of liberty. Chicago, IL: University of Chicago Press.Google Scholar
- Horn, MK. 2004: Giant fields 1868–2004 (CD-ROM). Revision to 2003. VersionAAPG/Datapages, Houston (Version 1.2, 2004).Google Scholar
- Kripfganz, S. 2016: Quasi–maximum likelihood estimation of linear dynamic short-T panel-data models. The Stata Journal 16(4): 1013–1038.Google Scholar
- Leamer, EE. 1983: Let’s take the con out of econometrics. The American Economic Review 73: 31–43.Google Scholar
- Marshall, M, Gurr, T and Jaggers, K. 2014: Polity IV project: political regime characteristics and transitions 1800–2013. Center for Systemic Peace.Google Scholar
- Murphy, RH. 2015: The impact of economic inequality on economic freedom. Cato Journal; Washington 35: 117–131.Google Scholar
- Murphy, RH. 2016a: A comment on “measuring economic freedom: a comparison of two major sources”. Journal of Private Enterprise 31: 69–75.Google Scholar
- Murphy, RH and O’Reilly, C. 2017: Applying panel vector autoregression to institutions, human capital, and output. Working paper. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2572059.
- North, DC. 1990: Institutions, institutional change and economic performance, 59262nd ed. Cambridge: Cambridge University Press.Google Scholar
- Rothbard, M. 1978: For a new liberty: the libertarian manifesto. Revised ed. San Francisco, CA: Fox, Wilkes.Google Scholar
- Sachs, JD and Warner, AM. 2001: The curse of natural resources. European Economic Review, 15th Annual Congress of the European Economic Association 45: 827–838. doi: 10.1016/S0014-2921(01)00125-8.