IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2016-061.html
   My bibliography  Save this paper

Winning the Oil Lottery: The Impact of Natural Resource Extraction on Growth

Author

Listed:
  • Mr. Tiago Cavalcanti
  • Daniel Da Mata
  • Mr. Frederik G Toscani

Abstract

This paper provides evidence of the causal impact of oil discoveries on development. Novel data on the drilling of 20,000 oil wells in Brazil allows us to exploit a quasi-experiment: Municipalities where oil was discovered constitute the treatment group, while municipalities with drilling but no discovery are the control group. The results show that oil discoveries significantly increase per capita GDP and urbanization. We find positive spillovers to non-oil sectors, specifically, an increase in services GDP which stems from higher output per worker. The results are consistent with greater local demand for non-tradable services driven by highly paid oil workers.

Suggested Citation

  • Mr. Tiago Cavalcanti & Daniel Da Mata & Mr. Frederik G Toscani, 2016. "Winning the Oil Lottery: The Impact of Natural Resource Extraction on Growth," IMF Working Papers 2016/061, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/061
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43789
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. da Mata, D. & Deichmann, U. & Henderson, J.V. & Lall, S.V. & Wang, H.G., 2007. "Determinants of city growth in Brazil," Journal of Urban Economics, Elsevier, vol. 62(2), pages 252-272, September.
    2. Thiemo Fetzer, 2014. "Can Workfare Programs Moderate Violence? Evidence from India," STICERD - Economic Organisation and Public Policy Discussion Papers Series 53, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Kuralbayeva, Karlygash & Stefanski, Radoslaw, 2013. "Windfalls, structural transformation and specialization," Journal of International Economics, Elsevier, vol. 90(2), pages 273-301.
    4. Walter Y. Oi & Todd L. Idson, 1999. "Workers Are More Productive in Large Firms," American Economic Review, American Economic Association, vol. 89(2), pages 104-108, May.
    5. Frölich, Markus & Lechner, Michael, 2010. "Exploiting Regional Treatment Intensity for the Evaluation of Labor Market Policies," Journal of the American Statistical Association, American Statistical Association, vol. 105(491), pages 1014-1029.
    6. Daron Acemoglu & Amy Finkelstein & Matthew J. Notowidigdo, 2013. "Income and Health Spending: Evidence from Oil Price Shocks," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1079-1095, October.
    7. Moretti, Enrico, 2011. "Local Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 14, pages 1237-1313, Elsevier.
    8. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    9. Alan Manning & Barbara Petrongolo, 2017. "How Local Are Labor Markets? Evidence from a Spatial Job Search Model," American Economic Review, American Economic Association, vol. 107(10), pages 2877-2907, October.
    10. Francesco Caselli & Andrea Tesei, 2016. "Resource Windfalls, Political Regimes, and Political Stability," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 573-590, July.
    11. Douglas Gollin & Remi Jedwab & Dietrich Vollrath, 2016. "Urbanization with and without industrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 35-70, March.
    12. Oeindrila Dube & Juan F. Vargas, 2013. "Commodity Price Shocks and Civil Conflict: Evidence from Colombia," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(4), pages 1384-1421.
    13. Fernanda Brollo & Tommaso Nannicini & Roberto Perotti & Guido Tabellini, 2013. "The Political Resource Curse," American Economic Review, American Economic Association, vol. 103(5), pages 1759-1796, August.
    14. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
    15. Amaral, Ernesto F. L., 2013. "Brazil, internal migration," OSF Preprints hg3vm, Center for Open Science.
    16. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2010. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 536-598, June.
    17. Ryan Kellogg, 2011. "Learning by Drilling: Interfirm Learning and Relationship Persistence in the Texas Oilpatch," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(4), pages 1961-2004.
    18. Anthony J. Venables, 2016. "Using Natural Resources for Development: Why Has It Proven So Difficult?," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 161-184, Winter.
    19. Rafael Dix‐Carneiro, 2014. "Trade Liberalization and Labor Market Dynamics," Econometrica, Econometric Society, vol. 82(3), pages 825-885, May.
    20. James Cust & Torfinn Harding, 2020. "Institutions and the Location of Oil Exploration," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1321-1350.
    21. Guy Michaels, 2011. "The Long Term Consequences of Resource‐Based Specialisation," Economic Journal, Royal Economic Society, vol. 121(551), pages 31-57, March.
    22. Fernando M. Arag?n & Juan Pablo Rud, 2013. "Natural Resources and Local Communities: Evidence from a Peruvian Gold Mine," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 1-25, May.
    23. Thiemo Fetzer, 2014. "Can Workfare Programs Moderate Violence? Evidence from India," STICERD - Economic Organisation and Public Policy Discussion Papers Series 053, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    24. Rabah Arezki & Valerie A. Ramey & Liugang Sheng, 2017. "News Shocks in Open Economies: Evidence from Giant Oil Discoveries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(1), pages 103-155.
    25. Francesco Caselli & Guy Michaels, 2013. "Do Oil Windfalls Improve Living Standards? Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 208-238, January.
    26. Oded Galor & Omer Moav & Dietrich Vollrath, 2009. "Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 143-179.
    27. Ersado, Lire, 2005. "Child Labor and Schooling Decisions in Urban and Rural Areas: Comparative Evidence from Nepal, Peru, and Zimbabwe," World Development, Elsevier, vol. 33(3), pages 455-480, March.
    28. Paula Bustos & Bruno Caprettini & Jacopo Ponticelli, 2016. "Agricultural Productivity and Structural Transformation: Evidence from Brazil," American Economic Review, American Economic Association, vol. 106(6), pages 1320-1365, June.
    29. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    30. Mohn, Klaus & Osmundsen, Petter, 2008. "Exploration economics in a regulated petroleum province: The case of the Norwegian Continental Shelf," Energy Economics, Elsevier, vol. 30(2), pages 303-320, March.
    31. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    32. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    33. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    34. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    35. Rabah Arezki & Kirk Hamilton & Kazim Kazimov, 2011. "Resource Windfalls, Macroeconmic Stability and Growth: The Role of Political Institutions," CESifo Working Paper Series 3678, CESifo.
    36. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    37. Ho, Daniel E. & Imai, Kosuke & King, Gary & Stuart, Elizabeth A., 2007. "Matching as Nonparametric Preprocessing for Reducing Model Dependence in Parametric Causal Inference," Political Analysis, Cambridge University Press, vol. 15(3), pages 199-236, July.
    38. Anca M. Cotet & Kevin K. Tsui, 2013. "Oil and Conflict: What Does the Cross Country Evidence Really Show?," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(1), pages 49-80, January.
    39. Radoslaw Stefanski, 2014. "Structural Transformation and the Oil Price," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(3), pages 484-504, July.
    40. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," The World Bank Economic Review, World Bank, vol. 19(2), pages 141-174.
    41. repec:hoo:wpaper:e-92-3 is not listed on IDEAS
    42. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Trade Liberalization and Regional Dynamics," American Economic Review, American Economic Association, vol. 107(10), pages 2908-2946, October.
    43. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    44. Donald R. Davis & David E. Weinstein, 2002. "Bones, Bombs, and Break Points: The Geography of Economic Activity," American Economic Review, American Economic Association, vol. 92(5), pages 1269-1289, December.
    45. Arezki, Rabah & Brückner, Markus, 2011. "Oil rents, corruption, and state stability: Evidence from panel data regressions," European Economic Review, Elsevier, vol. 55(7), pages 955-963.
    46. Douglas Gollin & Remi Jedwab & Dietrich Vollrath, 2013. "Urbanization with and without Structural Transformation," 2013 Meeting Papers 344, Society for Economic Dynamics.
    47. Hunt Allcott & Daniel Keniston, 2018. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(2), pages 695-731.
    48. Hunt Allcott & Daniel Keniston, 2014. "Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America," NBER Working Papers 20508, National Bureau of Economic Research, Inc.
    49. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
    50. Anca M. Cotet & Kevin K. Tsui, 2013. "Oil, Growth, and Health: What Does the Cross-Country Evidence Really Show?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(4), pages 1107-1137, October.
    51. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pelzl, Paul & Poelhekke, Steven, 2021. "Good mine, bad mine: Natural resource heterogeneity and Dutch disease in Indonesia," Journal of International Economics, Elsevier, vol. 131(C).
    2. James Cust & Torfinn Harding & Pierre-Louis Vézina, 2019. "Dutch Disease Resistance: Evidence from Indonesian Firms," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(6), pages 1205-1237.
    3. Mamo, Nemera & Bhattacharyya, Sambit & Moradi, Alexander, 2019. "Intensive and extensive margins of mining and development: Evidence from Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 139(C), pages 28-49.
    4. Nemera Gebeyehu Mamo, 2018. "Essays on natural resources in Africa: local economic development, multi-ethnic coalitions and armed conflict," Economics PhD Theses 0518, Department of Economics, University of Sussex Business School.
    5. Gradstein, Mark & Klemp, Marc, 2020. "Natural resource access and local economic growth," European Economic Review, Elsevier, vol. 127(C).
    6. Ralph de Haas & Steven Poelhekke, 2016. "Mining Matters: Natural Resource Extraction and Local Business Constraints," CESifo Working Paper Series 6198, CESifo.
    7. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Clark, Jeremy, 2017. "The evolution of the natural resource curse thesis: A critical literature survey," Resources Policy, Elsevier, vol. 51(C), pages 123-134.
    8. Maldonado, Stanislao, 2014. "The Non-Monotonic Political Effects of Resource Booms," MPRA Paper 85649, University Library of Munich, Germany, revised 18 Dec 2017.
    9. De Haas, Ralph & Poelhekke, Steven, 2019. "Mining matters: Natural resource extraction and firm-level constraints," Journal of International Economics, Elsevier, vol. 117(C), pages 109-124.
    10. Nouf Alsharif & Sambit Bhattacharyya, 2024. "Oil discovery, boom‐bust cycle and manufacturing slowdown: Evidence from a large industry level dataset," Review of Development Economics, Wiley Blackwell, vol. 28(2), pages 406-431, May.
    11. Pierre-Louis Vezina, 2017. "Resource discoveries and FDI bonanzas: An illustration from Mozambique," OxCarre Working Papers 199, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    12. Nouf Nasser Alsharif, 2017. "Three essays on growth and economic diversification in resource-rich countries," Economics PhD Theses 0317, Department of Economics, University of Sussex Business School.
    13. Gradstein, Mark & Klemp, Marc, 2016. "Can Black Gold Shine? The Effect of Oil Prices on Nighttime Light in Brazil," CEPR Discussion Papers 11686, C.E.P.R. Discussion Papers.
    14. Traviss Cassidy, 2019. "The Long-Run Effects of Oil Wealth on Development: Evidence from Petroleum Geology," The Economic Journal, Royal Economic Society, vol. 129(623), pages 2745-2778.
    15. Rodríguez-Puello, Gabriel & Rickardsson, Jonna, 2024. "Spatial Diffusion of Economic Shocks in the Labor Market: Evidence from a Mining Boom and Bust," OSF Preprints tzmf2, Center for Open Science.
    16. Nicoletta Corrocher & Camilla Lenzi & Marie-Louise Deshaires, 2020. "The curse of natural resources: an empirical analysis of European regions," Regional Studies, Taylor & Francis Journals, vol. 54(12), pages 1694-1708, December.
    17. van Krevel, Charan & Peters, Marlou, 2024. "How natural resource rents, exports, and government resource revenues determine Genuine Savings: Causal evidence from oil, gas, and coal," World Development, Elsevier, vol. 181(C).
    18. Ofori Adofo,Josephine & Tarui,Nori & Tanaka,Tomomi, 2022. "The Local Economic Effects of Natural Resources : Evidence from Ghana," Policy Research Working Paper Series 10154, The World Bank.
    19. Ralph De Haas & Steven Peolhekke, 2016. "Mining Matters: Natural Resource Extraction," OxCarre Working Papers 175, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    20. Konte, Maty & Vincent, Rose Camille, 2021. "Mining and quality of public services: The role of local governance and decentralization," World Development, Elsevier, vol. 140(C).

    More about this item

    Keywords

    WP; oil discovery; oil sector; oil municipality; oil worker; oil service; oil-producing firm; Oil and Gas; Economic Growth; Urbanization; oil deposit; oil MCAS; oil lottery; Oil; Oil production; Natural resources; Services sector; Manufacturing; Global;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2016/061. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.