Arab States Cursed by Oil?

At Hit & Run, Ron Bailey expresses a surprisingly confident explanation of Arab countries’ economic and political woes: oil. Yes, the resource curse is back in the news. But as longtime readers of Pileus know, recent research suggests that the resource curse may be a myth. To the extent that oil wealth explains poor economic performance, it only seems to do so contingent on other factors, such as the ownership of the resources. State oil companies are notorious failures, while private ownership of the means of extraction is associated with better growth.

Bailey points out that Saudi Arabia’s GDP is lower today than it was in 1981. True enough. But it doesn’t follow that oil has hurt Saudi Arabia’s economy. Oil prices were very high in 1981 but declined substantially in 2009 and 2010. Of course petrostates have lower GDP when oil prices are low. Just think about it for a moment: if Saudi Arabia had no oil, would it be even half as wealthy as it is? Of course not! Oil is no economic curse to Saudi Arabia. But might it be a political curse? Again, once the counterfactual is properly conceptualized, it seems unlikely. If Saudi Arabia were simply just another low-income, intensely religious country in southwest Asia, the predicted probability that the country would be democratic or at all liberal (in the Freedom House sense) would be tiny.

6 thoughts on “Arab States Cursed by Oil?

  1. Whenever a government receives in net resource revenues more than 5% of GDP, or 15% of its exports, or 25% of all tax revenues received from the citizens, you, as a citizen, find yourself cursed, as your government will mostly regard you as a nuisance and as a beggar of their favors.

    In Venezuela government currently receives directly more than 90% of all the country exports and there is no doubt that makes me an oil-cursed Venezuelan citizen.

  2. Memo to Norway: Jason Sorens finds your government owned (67%) Statoil company a notorious failure. Can you please stop to pretend otherwise.

  3. You can’t disprove a hypothesis with a single data point. The studies I cited are based on statistical analyses of global or regional samples. Besides, what’s the counterfactual? If Norway’s largest oil company were wholly private, would it be any less efficient?
    Oil exploration in Norway’s North Sea fields is also undertaken by private companies, not just Statoil.

  4. A Wiki Entry with 5 controversies? I’m impressed by Statoil’s performance. You do not want me to come up with comparable lists about private sector oil companies do you? I can bury you with alleged wrong-doings by BP, Exxon Mobile, this blog’s patron saint Koch Industry and alike. You will be busy reading all the stuff until the end of the year.

    Your reference to statistics is only laughable. The sample size is ridiculously small. Statistics isn’t the point here. The point is it doesn’t matter who owns these companies — OK beside your own ideological predilections — what matters is how the owner behaves. It is a difference if the owning government is a crazy tyrant like Qaddafi or a democratic elected one like in Norway. And please spare me your lyrics about benevolent efficient private ownership in the oil industry.

    1. On one level, of course it’s true that what the ownership does is what matters. But what determines what owners are likely to do? State-owned enterprises are generally inefficient (that’s not an ideological statement, even liberal economists accept it as a virtually universal empirical truth), because they typically lack clear principals, so the agents tend to run the firms in their own interests.

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