EMANES Working Paper No 72
The empirical relationship between hydrocarbon wealth and each of the dimensions of economic emergence is not clearly understood.
This research aims to contribute to the debate on the economic impacts of oil and gas resource development, by addressing the following questions: What are the impacts of hydrocarbon resource discoveries in the short and medium term on the trajectory of economic emergence? What is the role in these impacts of initial levels of country diversification, human capital or institutional quality?
Using lagged-effect panel models on a sample of 130 countries covering the period from 1980 to 2020, we estimate the causal link between giant hydrocarbon discoveries and a synthetic indicator of economic emergence, as well as its key indicators, whilst controlling for individual and time fixed effects. We also examine the potential heterogeneity of this relationship, as a function of the country’s initial levels of export diversification, education level and governance indicators.
The results show that oil and gas production can have significant and positive impacts on economic dynamism and macroeconomic stability in the short and medium term, such as stimulating economic growth, investment and savings, as well as improving the current account and primary budget balances. However, in terms of diversification and structural transformation, negative impacts have been observed overall, particularly on cereal yields, the manufacturing value added and the export concentration index. However, the negative impacts on structural transformation indicators disappear when the discovering country is initially endowed with a diversified economy, a high level of human capital or a low incidence of corruption.