The Impact of Natural Resources: Survey of Recent Quantitative Evidence

Abstract

The cross-country empirical evidence for the natural resource curse is ample, but unfortunately fraught with econometric difficulties. A recent wave of studies on measuring the impact of natural resource windfalls on the economy exploits novel datasets such as giant oil discoveries to identify effects of windfalls, uses natural experiments and within-country econometric analysis, and estimates local impacts. These studies offer more hope in the search of quantitative evidence.

Acknowledgments

Support from the BP funded OxCarre is gratefully acknowledged.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Abundance, or the value of subsoil assets, depends on the present discounted value of future rents, and thus on price expectations (which depend on growth) and assumptions on the lifetime of reserves and the discount factor. Even not-yet-extracted reserves relate to economically recoverability of the reserves and also depend on the price of resources and the state of technology. Finally, even reserves depend not only on geology but also on exploration effort. For the latter point, see Cust and Harding (2014). It is therefore difficult to defend common measures of natural resource wealth as exogenous.

2. This setting is ideal if (i) exploration effort was uniform across the counties, and (ii) development of shale was allowed in all counties. Shale formations have long been identified and horizontal drilling and fracking applied since 1947. The boom of the 1970s and 1980s incentivised exploration. However, it was not until the recent oil price boom that many shale reserves became economically recoverable again. Shale development, however, does vary by country, state and county. To what extend the decision to ban fracking is endogenous is still an open question (Allcott & Keniston, 2014).