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

Class of 2021 announced

The Gates Cambridge Class of 2021 made up of 74 outstanding new scholars has been officially announced. The Gates Cambridge scholarship programme, which this year celebrates its 20th anniversary, is the University of Cambridge’s leading international postgraduate scholarship programme. It was established through a US$210 million donation to the University of Cambridge from the Bill […]

Serotonin and its role in emotional responses

Two new studies which shed light on the role of serotonin in emotional responses have been published in leading journals. Jonathan Kanen [2015] is lead author of both. The first is published in Translational Psychiatry and looked at the influence of the neurotransmitter serotonin on emotional reactions to social conflict. The study involved volunteers drawing […]

Scholar wins NASA Fellowship

A Gates Cambridge Scholar has won a prestigious NASA Fellowship to continue his studies on exoplanets. Luis Welbanks has been awarded a NASA Hubble Fellowship and will begin his programme in the autumn at Arizona State University. The Fellowship programme “enables outstanding postdoctoral scientists to pursue independent research in any area of NASA Astrophysics, using […]

Covid safety for healthcare workers in resource-poor contexts

How can healthcare workers in low- and middle-income countries protect themselves from Covid-19 contamination if resources to fund PPE are limited? A new study, led by Gates Cambridge Scholar Dylan Griswold, shows which PPE is the most protective for those working in emergency trauma surgery and how it can safely be reused. The report reviewed […]