Oil abundance aids growth, says study

  • April 7, 2011
Oil abundance aids growth, says study

Gates alumnus Kamiar Mohaddes co-writes study debunking oil orthodoxy.

Being an oil-rich country is not a curse, but the volatility of oil income can prevent a country from capitalising on its assets, according to a new series of studies by economists including Gates alumnus Kamiar Mohaddes [2005].

The study, Does oil abundance harm growth?, published in the journal Applied Economics Letters, argues that previous assumptions that oil abundance is a curse were based on methodologies which failed to take into account cross-country differences and dependencies arising from global shocks, such as changes in technology and the price of oil.

Kamiar says: “The idea that oil and resource abundant countries are cursed, the so-called ‘resource curse paradox’, has been around for some time and is based largely on the experiences of countries in Africa and the Middle East. But if you have a certain level of income and suddenly you discover billions of dollars worth of oil that will last you for decades, why should you be made worse off?”

The researchers studied data from the World Bank over the period 1980 to 2006 for 53 countries, covering 85% of world GDP and 81% of world proven oil reserves. They found that oil abundance positively affected both short-term growth and long-term income levels.

The researchers from the University of Cambridge’s Faculty of Economics also have a grant from the Economic Research Forum (ERF) to investigate the impact of commodity price volatility on economic growth. Using data on 118 countries over the period 1970-2007, they discovered that it is the volatility in commodity prices, rather than abundance per se, that drives the resource curse paradox. These results are to be published as an ERF working paper entitled Commodity price volatility and the sources of growth.

The research suggests the importance of diversifying exports away from a handful of primary commodities to technology intense goods. It also suggests that resource abundant countries could manage the volatility better by investing oil revenues in sovereign wealth funds to use at a later date.

“This volatilitychannel of impact has been overlooked in the literature despite the fact that countries specialising in the export of just a few primary products are usually exposed to substantial commodity price uncertainty and macroeconomic instability,” says Kamiar. “What we hope is that policymakers will use this research to put more emphasis on better management of resource income volatility to create a more stable macroeconomic framework.”

Kamiar’s PhD in Economics was funded by a Gates scholarship.

Picture credit: www.freedigitalphotos.net and m_bartosch

Latest News

Why technology needs feminism

What is good technology? Is ‘good’ technology even possible? And how can feminism contribute towards it? Those questions and more are at the heart of a new book co-edited by Gates Cambridge Scholar Dr Kerry McInerney and based on the popular podcast series she co-hosts. The Good Robot: Why technology needs feminism gathers together the thoughts of leading […]

‘Knowledge alone isn’t enough’

The summer before starting his PhD at the University of Cambridge, Rob Henderson was working up a book proposal with his literary agent. That book, Troubled, is published next month by Simon & Schuster and is part memoir, part social commentary.  In it Rob recounts his life growing up in foster care and his time […]

Connecting climate change and mental health

A Gates Cambridge Scholar is organising a webinar to publicise the formal launch of a public, online information hub on the intersection between climate change and mental health. Colleen Rollins [2017], editorial and project manager at the Climate Psychiatry Alliance, is working on the Ecopsychepedia (“EcoPsy”) project which will be the subject of a webinar […]

Reconnecting through music

When José Izquierdo [2013] was working on his PhD at Cambridge on how Latin American composers united European and local influences in the 19th century, he found a way to make his academic work come to life. Much of the music he was researching had never been heard before and he was also discovering old scores […]