Exogenous Resource Shocks and Economic Freedom

Abstract

An extensive literature has identified the tendency of natural resource rents to inhibit the development of quality institutions, though few studies have investigated the effects on economic institutions. We use a data set of plausibly exogenous “giant” oil field discoveries as a means of testing whether the presence of large resource rents impacts a country’s economic institutions. We find evidence of short run effects of these discoveries on the size of government spending, but find no evidence of an effect on economic institutions in general. At least for this set of resource discoveries, there is no resource curse for economic institutions.