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Cursed Resources? Political Conditions and Oil Market Outcomes

Abstract:
We analyze how a country's political institutions affect oil production within its borders. We find a pronounced negative relationship between political openness and volatility in oil production, with democratic regimes exhibiting less volatility than more autocratic regimes. This relationship holds across a number of robustness checks including using different measures of political conditions, instrumenting for political conditions and using several measures of production volatility. Political openness also affects other oil market outcomes, including total production as a share of reserves. Our findings have implications both for interpreting the role of institutions in explaining differences in macroeconomic development and for understanding world oil markets.

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JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q33: Resource Booms, Q38: Nonrenewable Resources and Conservation: Government Policy, Q54: Climate; Natural Disasters and Their Management; Global Warming, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: Oil Supply, Oil Disruptions, Political Institutions, Energy Security

DOI: 10.5547/01956574.36.3.gmet

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Published in Volume 36, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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