Economic Development Assumptions and the Elusive Curse of Oil

Abstract

Scholars have argued that oil resources lead to poor quality institutions and governance, which causes slower economic growth, an increased propensity for civil war, and other maladies. Such conclusions, however, rest on strong modernization assumptions that oil resources are unrelated or detrimental to the level of economic development. Utilizing a unique multilevel version of extreme bounds analysis (EBA), we find that oil's deleterious effects on governance are not well established. Instead, when we relax strong assumptions about the exogeneity of economic development and utilize more objective indicators of institutional quality, oil has a net positive impact on governance. Moreover, when accounting for endogeneity, there is little to suggest either an intervening or independent effect of poor governance on civil conflict in petro-states.