Template-Type: ReDIF-Paper 1.0
Author-Name:  Jodie Gatti
Author-Name-First: Jodie
Author-Name-Last: Gatti
Author-Email: jmgatti@alaska.edu
Author-Workplace-Name: Department of Economics and Public Policy, University of Alaska Anchorage
Author-Name:  Gavin Triplet
Author-Name-First: Gavin
Author-Name-Last: Triplet
Author-Email: triplett.gavin@gmail.com
Author-Workplace-Name: Department of Economics and Public Policy, University of Alaska Anchorage
Author-Name:  Alexander James
Author-Name-First: Alexander
Author-Name-Last: James
Author-Email:  alex.james@uaa.alaska.edu
Author-Workplace-Name: Department of Economics and Public Policy, University of Alaska Anchorage
Title:  Fata Morganas In Oil-Rich, Institution-Poor Economies
Abstract:  Oil-dependent countries suffer from bad institutions, but is oil the culprit? Herein we argue that weak institutions lead to resource dependence, and that this form of reverse causality does not merely bias the estimated effect of oil dependence, it is solely responsible for it. We highlight this point in a novel way. We first document a robust inverse relationship between oil dependence and institutional quality across countries. We then re-estimate this relationship holding the value of resource production constant across all countries. The two sets of results are statistically indifferent, meaning that variation in GDP fully explains why oil-dependent economies suffer from bad institutions. This remarkable finding offers broad implications that reach beyond the resource-development literature and speaks generally to the practice of scaling explanatory variables by GDP.

Creation-date: 2018-01 
File-URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201801.pdf
File-Format: Application/pdf
Classification-JEL: Q3, Q4
Keywords: Resource Curse; Resource-Dependent Countries; Estimation Bias
Publication-Status: Forthcoming
Number: 2018-01
Handle: RePEc:ala:wpaper:2018-01