Oil Price Volatility and Political Unrest: Prudence and Protest in Producer and Consumer Societies, 1980-2013
50 Pages Posted: 1 Mar 2018
Date Written: February 16, 2018
Many find that oil wealth produces political conflict. It is also argued that oil makes countries susceptible to the “resource curse” because rulers more easily buy off opposition and stave off economic reforms. We explore this issue by examining whether oil price volatility affects political unrest in oil-producing and oil import dependent states. We argue that in oil-producing countries, low prices generate anti-government protest conditional on a state´s access to foreign exchange reserves that accumulate due to political prudence. We also argue that oil-importing countries are affected by high oil prices, but again, conditional on access to foreign exchange reserves, which allow government to ease the pain of austerity. Using panel data covering 165 countries between 1980-2013 (34 years), we find support for the hypotheses. Our results lend support to the view that prudent governance in oil-producer countries that resist political Dutch disease and save for rainy days are more capable of weathering low-price years. These results are in line with others that show that oil producers avoid civil war through higher public spending. The results are robust to alternative data, measurement, sample size, and estimation methods.
Keywords: oil wealth, oil price, Dutch disease, forex reserves, political unrest
Suggested Citation: Suggested Citation