Petrostates and Private Sectors: Regulating Business and Markets in Resource-Rich Countries

Abstract

Oil-rich countries such as Iran, Nigeria, and Russia are often cited as among the most difficult places in the world to open and operate a business. Is this observation a widespread phenomenon among oil-rich countries and can it be explained by the mere presence of oil? If so, what is the causal process? Statistical techniques using data on over 150 countries provide evidence that, all else equal, higher oil and gas income leads to higher regulatory barriers to opening a firm and less access to credit. An analysis of Iran illustrates how the introduction of massive oil revenues resulted in heightened rent-seeking from private sector elites and increased regulatory barriers to owners of small and medium-sized capital. This study makes a number of contributions to the writings in political economy on natural resources and the so-called curse phenomenon. For one, it offers an initial investigation into the effects of oil wealth on regulatory policy-making and the quality of a country's business environment. Second, its focus on political and regulatory factors provides an alternative causal story to the Dutch Disease argument that has long served as the traditional explanation for the resource curse.