Media Briefings

More Oil, Less Democracy: Evidence From Worldwide Crude Oil Discoveries

  • Published Date: March 2011

The more valuable the oil resources of a non-democratic country, the less likely it is to become democratic. That is the key conclusion of research by Professor Kevin Tsui, whose work sheds light on the democratic prospects of the countries of the Middle East and North Africa.

His study, which is published in the March 2011 issue of the Economic Journal, uses detailed industrial data on the history of worldwide oil discoveries to provide new evidence on the long-term effect of oil wealth on democracy. Among the main findings:

  • Larger oil discoveries lead to slower transitions to democracy, such as moving from rigged to fair elections, allowing free speech, etc.
  • The negative effect of oil on democracy is larger the higher the oil quality and the lower the costs of oil exploration and extraction.
  • The discovery of oil has essentially no political impact in countries that are already democratic, such as Norway.
  • At least until recent events in the Middle East, oil-rich non-democratic countries do not experience more civil conflict. Rather, oil-rich non-democratic countries spend significantly more on military.
  • As seen now in Libya and elsewhere, lucrative oil reserves provide strong incentives for greedy dictators to remain in power – and they use fear to deter their political opponents.

Many people believe that natural resource wealth is a social curse. For example, oil wealth is said to enhance the durability of bad authoritarian regimes because it enables dictators to become stronger by funding patronage. But, Professor Tsui asks:

‘How do we reconcile the co-existence of some oil-rich non-democratic regimes, such as Saudi Arabia’s royal family, and some of the most democratic countries like Norway, where the Norwegian Oil Fund is used to fuel the economy?

‘My answer is: both geology and history matter!’

While oil exploration and extraction activities extend over time, the data suggest that a country’s major discoveries are usually concentrated in a few years, known as the peak discovery period. For example, while many oil-rich countries in the Middle East had a peak discovery year prior to 1950, Norway’s peak discovery year was 1979.

By comparing the long-term change in democracy in countries before and after their peak discovery years, the analysis shows that larger oil discoveries lead to slower transitions to democracy.

Professor Tsui estimates that, on average, when non-democratic countries discover 100 billion barrels of oil (approximately the oil endowment of Iraq), it pushes their democracy score about 15 percentage points below trend three decades after the discovery. As a point of reference, Bahrain is about 15 percentage points more democratic than Saudi Arabia. So the estimated effect appears to be modest.

But taking account of geological factors – such as oil quality, oilfield depth and other indicators of the costs of extraction – the negative effect of oil on democracy almost doubles. A difference of 30 percentage points in democracy is approximately the difference between Jordan and Saudi Arabia.

Moreover, the negative effect of oil is larger the higher the oil quality and the lower the exploration and extraction costs. Norway is a relatively high-cost oil-producing country because of the technological challenge involved in extracting North Sea oil. But in addition, since history also matters, Norway remains one of the most democratic countries in the world.

Indeed, another major finding of this research is that oil discovery has essentially no political impact in democratic countries. Norway has been a democratic country since the beginning of the twentieth century. More than 70 years of democratic experience made Norway a consolidated democracy when oil was discovered in the 1970s – and Norway has not become less democratic since then.

Before the 1950s, Egypt was one of the relatively more democratic countries in the Middle East and North Africa region. Its limited oil discoveries peaked in 1965 and oil production in Egypt has been declining since the mid-1990s. Tunisia has a similar oil history. The findings of this research suggest that the recent political events in these two countries may not be coincidences.

Professor Tsui comments:

‘Oil wealth can be a political curse when oil-rich dictators oppose democratic development because they will have more to give up from losing power.

‘But my study highlights the importance of the possibility of heterogeneous effects when evaluating the social impact of resource wealth.’

Extending the analysis in a study with Professor Anca Cotet from Ball State University, Professor Tsui finds that oil-rich non-democratic countries do not experience more civil conflict. Rather, oil-rich non-democratic countries spend significantly more on the military.

In terms of the mechanism, in research with Professor Casey Mulligan from the University of Chicago, Professor Tsui argues that lucrative oil reserves provide strong incentives for greedy dictators to remain in power – and they use fear to deter their greedy political opponents.

ENDS

Notes for editors: ‘More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries’ by Kevin Tsui is published in the March 2011 issue of the Economic Journal.

Kevin Tsui is at Clemson University in South Carolina.

For further information: contact Kevin Tsui on +1-864-656-3953 (email: ktsui316@gmail.com); or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com).