The Oil Curse: How petroleum wealth shapes the development of nations

Abstract

There have been many books written – over the last decade in particular – about the impacts of the so-called resource or oil curse. Michael Ross's is distinguished from many other offerings by the systematic approach he brings to bear on his subject and the rigour of his analysis. According to Ross, too much previous writing and research has been anecdotal about the impacts of oil on national development, in the Third World in particular. Using detailed data and statistical analytical techniques, Ross shows how oil wealth is not always a curse and, upending the conventional wisdom, that oil-rich countries have tended to grow economically at roughly the same level as their oil-poor ‘cousins’. The ‘curse’, then, is that they have not grown faster, given their natural resource endowments. Ross argues that we need to be specific about times and places when talking about the impacts of oil. After the oil crisis of the 1970s, and associated price increases, the exploration frontier was extended around the globe, particularly into low-income countries, where previously transnational companies had been reluctant to invest because of their institutional environments and concerns over property rights in particular. Ross shows how access to oil rents has bolstered authoritarian regimes in many of these countries, in addition to narrowing the economic base as a result of ‘Dutch disease’ (named for the impacts of a gas discovery in that country in the 1960s), as currency appreciation makes imports cheaper and exports not denominated in dollars more expensive. However, he disputes that oil has caused institutional deterioration or hampered intitutional development in these countries, although he notes that managing the effects of oil revenues is institutionally demanding, and that many problems have arisen as a result.