Exogenous Resource Shocks and Economic Freedom

19 Pages Posted: 1 Sep 2016 Last revised: 21 Sep 2016

See all articles by Colin O'Reilly

Colin O'Reilly

Creighton University

Ryan Murphy

Southern Methodist University (SMU)

Date Written: August 30, 2016

Abstract

There is an extensive literature on the presence of valuable natural resources creating a competition for control of central states and resource rents. This mechanism has been argued to be an important underlying factor preventing certain countries from acquiring good institutions and achieving long run economic growth. In this paper, we use a recent data set on the discovery of large, exogenous oil field discoveries as a means of testing whether the presence of large resource rents maligns the freedom of a country’s economic institutions. We find there to be some evidence of contemporaneous effects of these discoveries on the size of government spending, especially transfer payments and subsidies, but this does not show up in our overall measure of economic freedom. These effects also dissipate with time to statistical and economic insignificance, suggesting the discoveries have short run effects on policy but do not impact the underlying institutions at all. At least for this set of exogenous resource discoveries, there is no resource curse for economic freedom.

Keywords: Resource Curse, Economic Freedom, Economic Institutions

JEL Classification: D72, O13, P10

Suggested Citation

O'Reilly, Colin and Murphy, Ryan, Exogenous Resource Shocks and Economic Freedom (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2832541 or http://dx.doi.org/10.2139/ssrn.2832541

Colin O'Reilly (Contact Author)

Creighton University ( email )

2500 California St.
Omaha, NE 68178
United States

Ryan Murphy

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

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