Michael L. Ross - The Oil Curse: How Petroleum Wealth Shapes the Development of Nations

The Oil Curse

The Oil Curse

HOW PETROLEUM WEALTH SHAPES THE DEVELOPMENT OF NATIONS

Michael L. Ross

PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD

Copyright 2012 by Princeton University Press

Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock,

Oxfordshire OX20 1TW

press.princeton.edu

All Rights Reserved

Library of Congress Cataloging-in-Publication Data

Ross, Michael, 1961

The oil curse : how petroleum wealth shapes the development of nations / Michael L. Ross.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-691-14545-7 (hardback)

1. Petroleum industry and tradeGovernment policyDeveloping countries. 2. RevenueDeveloping countries. 3. Petroleum productsPrices. 4. Developing countriesEconomic policy. 5. WomenDeveloping countriesSocial conditions. 6. Natural resourcesDeveloping countries. 7. Civil warDeveloping countries. I. Title.

HD9578.D44R67 2012

338.90091724dc23

2011021743

British Library Cataloging-in-Publication Data is available

This book has been composed in Palatino LT Std by Achorn International, Inc. Printed on acid-free paper.

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

For Tina

Contents

Foreign direct investment in extractive industries, 2007

The number and income of oil-producing states, 19602006

Incomes of new oil producers, 18572015

Size of the Nigerian government, 19501984

Oil and the size of government

Government size in selected oil and non-oil states

Petroleum in the economy and government, 2007

Oil prices and oil rents in selected countries, 2008

Government expropriation of oil companies, 19601993

Capital-to-labor ratios in major industries

Price of a barrel of oil, 18612009

US petroleum production and consumption, 19472007

Proved oil reserves, 2005

Government revenues in Iran and Egypt, 19702009

Number of democracies and autocracies, 19602008

Oil and transitions to democracy, 19602006

Number of oil-producing democracies and autocracies, 19602008

Democracy levels over time, 19602004

Government spending-to-revenue ratios in autocracies, 19702008

Oil income and gasoline prices, 2006

Oil and budget transparency in autocracies, 2008

Oil and democracy in the USSR and Russia, 19602007

How oil production can affect the status of women

Women in the labor force by region, 19932002

Women in parliament by region, 2002

Oil and female labor force participation in the Middle East, 19932002

Oil and female suffrage in the Middle East, 19402010

Oil and female parliamentary seats in the Middle East, 2002

Wages for textile workers in Tunisia and Algeria, 19871991

Oil and civil wars in low- and middle-income countries, 19602006

Oil and non-oil countries with new conflicts, 19652006

Number of oil and non-oil states with ongoing conflicts, 19602006

Percentage of ongoing conflicts in states with oil, 19602006

Annual conflict rates, oil and non-oil countries, 19602006

Annual conflict rates by petroleum location (%), 19602006

Incomes of the leading oil producers, 19502006

Incomes of the leading oil producers and oil prices, 19502006

Changes in income per capita, 19741989

Oil production in Oman and world oil prices, 19602006

Oil production in Malaysia and world oil prices, 19602006

Changes in child mortality, 19702003

Annual growth in total GDP, 19602006

Changes in control of corruption, 19962006

Incomes and perceived government effectiveness, 2005

Oil and democracy in the Middle East, 19932002

Oil and the gender rights in the Middle East, 2004

Oil- and gas-producing countries, 2009

Size of government, 2003

Taxes on goods and services, 2002

Worlds largest oil and gas firms, by market capitalization, 2005

Worlds largest oil and gas firms, by proven reserves, 2005

Transitions to democracy, 19602006

Democratic transitions among oil-producing countries, 19462010

Budget transparency, 2008

Press freedom, 2006

Availability of fiscal data, 2006

Transitions to authoritarianism, 19602006

Transitions to democracy, 19602006

Democracy levels, 19602004

Transitions to authoritarianism, 19602006

Democracy: Robustness tests

Transitions to democracy: Causal mechanisms

Female labor force participation, 2002

Textile and clothing exports, 2002

Parliamentary seats held by women, 2002

Comparing Algeria, Morocco, and Tunisia

Female labor force participation, 19602002

Female labor force participation, before and after 1980

Female labor force participation, 19932002

Parliamentary seats held by women, 2002

Female empowerment: Robustness tests

Civil wars, 19602006

Most conflict-prone oil and gas producers, 19602006

Separatist conflicts in oil-producing regions, 19602010

Civil war onsets, 19602006

Separatist, government, and major civil wars, 19602006

Civil war onsets: Robustness tests

Annual economic growth per capita, 19602006

Economic growth among long-term oil producers, 19602006

Annual economic growth, 19602006

Perceived government quality, 19962006

ANYONE who has dreamed of winning the lottery or finding buried treasure assumes that a large cash windfall will make them better off. But for many developing countries, finding valuable natural resources can have strange and sometimes politically harmful consequences. This book explains the origins and nature of this curse, and how it might be remedied.

Since I began to research this issue in the late 1990s, a lot has changed. Earlier studies of the resource curse focused on the puzzling commodity booms of the 1970s, which produced mountains of cash but little sustained growth in most resource-rich countries. Since 2000 there has been a new boom in commodity prices, generating a new flood of revenues for mineral-producing countries, and a new interest in the perverse effects of resource wealth. It has also given scholars a wealth of new data on the links between natural resources, economics, and politics.

The political landscape has also shifted. Many petroleum-exporting countries have adopted new institutions to manage their windfalls. Thanks to pressures from nongovernmental organizations (NGOs), new international agreements have been launched to choke off the trade in conflict diamonds, and promote revenue transparency in the oil, gas, and minerals sectors. The World Bank and the International Monetary Fund (IMF)which I criticized in a 2001 Oxfam report for funding mining projects that did little to help the poorhave embraced the cause of extractive-sector reforms.

When I began to write this book in 2005, I reexamined my own previously published studies suggesting that resource wealth made countries less democratic and more prone to civil war. To my embarrassment, I found more than a few errors, omissions, and hard-to-defend assumptions. Prompted by some smart skepticsnotably Michael Herb, Stephen Haber, Victor Menaldo, Gavin Wright, Robert Conrad, Michael Alexeev, Erwin Bulte, and Christina BrunnschweilerI decided to take a fresh look at the data.

I discovered some surprises. Things I assumed were truethat petroleum wealth was linked to slow economic growth and weak government institutionswere probably wrong. Other findings held up, although in modified forms. Patterns that I thought I understood, like the relationship between oil and authoritarianism, and oil and civil war, were incomplete. Petroleum seemed to have a stronger and more harmful effect than other kinds of minerals. And I started to appreciate the role of factors I had overlookedlike the impact of petroleum wealth on economic opportunities for women, which had far-reaching consequences for womens political rights, population growth, and long-term economic growth.