Working Paper 184 - Does Oil Wealth Affect Democracy in Africa?

Understanding the effect of oil wealth on democracy is important. National democratic institutions provide a check on governmental power and thereby limit the potential of public officials to amass personal wealth and to carry out unpopular policies. Democracy promotion has thus been at the top of the US and West European foreign policy agenda since the end of the Cold War. Recently rising coups d’états attempts and oil discoveries in some African countries, high energy prices and the North African and Middle East situation characterized by revolutions have made the question of the link between oil wealth and democracy timelier than ever. This paper uses recent data on historical oil wealth to provide new evidence on the effect of oil wealth on democracy in Africa from 1955 to 2008. We find that oil wealth is statistically associated with a lower likelihood of democratization when we estimate the relationship in a pooled cross-sectional and time-series setting. In addition, when estimated using fixed effects, the strong negative statistical association continues to hold. Indeed, this result is robust to the source of oil wealth data, the choice and treatment of the variables set, and the sample selection. Our results also show other interesting and important results. The cross-country evidence examined in the study confirms that the “Lipset/Aristotle/modernization hypothesis” (that prosperity stimulates democracy) is a strong empirical regularity. Also, the propensity for democracy rises with population size, population density, ethnic fractionalization, having British legal origin or colonial heritage, and having a supportive institutional environment in the form of maintenance of the rule of law. However, apart from oil wealth, democracy tends to fall with linguistic fractionalization and rough (mountainous) terrain. Moreover, consistent with the data, North Africa consistently fails to favor democratic development.