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Erschienen in: Studies in Comparative International Development 4/2017

24.03.2017

Does Oil Hinder Social Spending? Evidence from Dictatorships, 1972–2008

verfasst von: Ji Yeon Hong

Erschienen in: Studies in Comparative International Development | Ausgabe 4/2017

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Abstract

This paper examines the effects of natural resource abundance on social spending in dictatorships. Natural resources, particularly oil, provide authoritarian leaders with economic rents without widescale labor force participation. I argue that dependence on natural resource production thus reduces dictators’ incentive to invest in human capital, which is reflected in lower levels of social spending. Using a panel dataset of authoritarian regimes between 1972 and 2008, I find that oil abundance leads to significantly lower levels of social spending by authoritarian governments. The negative effects are especially prominent concerning expenditures for public education and health: when an authoritarian country earns ten more dollars per capita from oil production, per capita spending on education and health decreases by approximately 1%. Extended analysis shows that the negative impact of oil on social spending is peculiar to authoritarian regimes; no impact of oil wealth on social expenditures is found among democracies.

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Fußnoten
1
The top ten oil-exporting countries in 2012 are Saudi Arabia, Russia, United Arab Emirates, Kuwait, Iraq, Nigeria, Qatar, Iran, Angola, and Venezuela (US Energy Information Administration 2014).
 
2
Although some studies distinguish oil “abundance” from “dependence” (Brunnschweiler and Bulte 2008), I use those terms interchangeably to refer to a country’s heavy reliance on natural resource extraction for economic production.
 
3
Recently, a growing number of economists and political scientists disagree with the resource curse claim. For instance, Herb (2005) and Haber and Menaldo (2011) argue that previous results are broadly biased by unobserved or omitted variables. Alexeev and Conrad (2009) find no negative linkage between oil and growth or democracy. Cotet and Tsui (2013b) find no relationship between oil reserves and conflict. Brunnschweiler (2008) and Haber and Menaldo (2011) further argue that if properly measured, natural resource abundance is a blessing, not a curse.
 
4
Gandhi (2008) and Desai et al. (2009) present opposite predictions and empirical evidence in regard to social spending due to this ambiguity.
 
5
Excessive spending for social security is often blamed for causing economic underperformance, by reducing individuals’ incentive to work and by taking government budgets away from other productive public expenditures (Levy 2008).
 
6
Endogenous time horizons constitute another key difference between authoritarian and democratic political systems, legitimizing the research design of this study.
 
7
The most frequently mentioned cases of such dictatorships are twentieth century East Asian autocracies, including Japan, South Korea, Taiwan, Hong Kong, and Singapore. The improvement of Chinese education and health systems provides a more recent example.
 
8
It is still arguable as to whether or not currently available oil reserves data are providing an exogenous measurement of oil wealth. Laherrere (2001) shows that publicized data of oil reserves are generally unreliable for various reasons.
 
9
There has been some concern that the inclusion of the LDV induces a correlation between the country fixed-effects and the error term, potentially estimating results with bias called Nickell bias (Nickell 1981). However, Beck and Katz (2004) show that the root mean square error (RMSE) of the LDV with a unit fixed-effects model improves drastically as T increases. To show that the results are not driven by model choice, I present all results from both the simple fixed-effects estimation and the LDV estimation.
 
10
Relatedly, Hong (2015) finds negative effects of oil and coal production on local government’s public service provisions using data from Chinese cities, where no electoral constraint exists.
 
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Metadaten
Titel
Does Oil Hinder Social Spending? Evidence from Dictatorships, 1972–2008
verfasst von
Ji Yeon Hong
Publikationsdatum
24.03.2017
Verlag
Springer US
Erschienen in
Studies in Comparative International Development / Ausgabe 4/2017
Print ISSN: 0039-3606
Elektronische ISSN: 1936-6167
DOI
https://doi.org/10.1007/s12116-017-9237-y

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