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

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.