Oil “Rents” and Political Development: What Do We Really Know About the Curse of Natural Resources?

Abstract

Research on the political implications of oil wealth is now over two decades old, and yet still unresolved. Despite many advances in this literature, a core concept—resource rents—remains under-theorized, and even less well measured. This mis-measurement, we contend, has direct and significant consequences for theoretical findings on the resource curse. Although rents refer to excessive profits, analyses to date have not directly or indirectly focused on the profitability of oil extraction; instead they rely more often on estimates of gross receipts or exports of natural resources. The largely untested assumption that oil sales consistently produce enormous profits has been the bridge used to treat these as measures of rents, even as the empirical foundations for this claim are shaky. In contrast, we measure the difficulty of oil production using data from over 3800 major oil fields around the globe between 1980 and 2012 to more accurately estimate the income generated by oil production and to calibrate its rent-generating potential using important correlates of its cost of production. The results show that where oil’s cost of production is low, and its profitability high, pernicious regime outcomes are observed in keeping with resource curse claims. However, as production shifts to more challenging sources, oil production loses this association and may well at the extremes be associated with modestly more democratic outcomes. In other words, it is only “easy oil” that may be a curse for democratic development.