The Effect of Oil Reserves Volume on Economic Growth
Selected countries from the perspective of resource curse
(With emphasis on democracy)
Ali Emadi
Aemasi10@gmail.com
Abstract
In this study, we examine the effect of oil reserves volume on economic growth
in three high-income income groups (Australia, US, UK, Denmark, Norway and
Canada) and low income (Egypt, India, Indonesia, and Syria) for the period.
1960-2012, with emphasis on democracy. For this purpose, we use the dynamic
panel data model and the GMM method.The dependent variable uses GDP 2005
at the constant price of the dollar and the independent variables are the model,
the volume of oil reserves, the size (costs) of government, democracy or public
participation, trade freedom, and the consumer price index. The resource curse
phenomenon is common in middle-income countries, but it is rejected in highincome and low-income countries.
Keywords
Curse of Democrat, Resource Holders in Rashad Oilfield Reserves, Economical
growth
1. Introduction
The richness of natural resources has caused similar disasters in different forms
and times. Throughout history, numerous examples can be seen showing that
countries with abundant natural resources had a worse fate than poor nations in
terms of resources. In the seventeenth century the Netherlands outperformed
rich resource-rich Spain, even though the Spanish treasuries were rich in gold
and silver obtained from the America.In recent years in Angola, as one of the
most important African oil countries, $ 4.2 billion has been cut from the state
treasury. In Venezuela, poverty has more than doubled since the late 1970s, and
the share of national income given to shareholders and infidels has increased
from 50% to 80%. As a result, ordinary workers now earn only 20% of
economic income. (birdsall and subramanian, 2004).
One can honestly say that Nigeria's most dramatic oil experience has been
through. Subsequent military rule and successive coups, widespread internal
strife, corruption and high inflation have been Nigeria's share of oil sales. And
83.5 in 2000. Per capita oil revenue rose from $ 33 in 1965 to $ 325 in
2000.Between 1970 and 2000, the population living on less than a dollar a day
in Nigeria has gone from 26 percent to almost 70 percent. Consecutive military
dictatorships have plundered huge oil wealth and Niger has been spreading
stories about the transfer of large amounts of wealth. Not known in other
countries. Oil revenues have fundamentally altered Nigeria's politics and
government (ibrahim, sala.i.martin, auty, 2003).
Therefore, oil wealth and its impact on the economic growth of countries is an
important issue that needs to be addressed. In this study, we examine the effect
of reserves volume on economic growth in oil-rich countries with emphasis on
democracy, the first part of which deals with the theoretical foundations of the
research. The second section is devoted to a review of the research performed.
In the next section, the model is refined and the results analyzed, and the final
section concludes.
2. Theoretical Foundations
1-2. Oil reserves and the curse phenomenon of resources
The resource curse hypothesis has been favored by countries with abundant
natural resources, which have less economic growth than countries with limited
natural resources. It provides the fastest source of foreign exchange and attracts
foreign investment and capital, as well as increasing access to raw materials,
production and demand for industrial products. However, over the past 50 years,
countries rich in natural resources such as Russia, Nigeria and Venezuela have
experienced much less economic growth than other countries with less natural
resources (Auty, 2001).A person who has a big windfall is better off winning or
drawing treasure, but for many developing countries, finding valuable natural
resources can have strange and sometimes harmful political implications. To
have. In oil-rich countries, less democracy, less economic stability, and civil
wars
are
more
common
than
countries
without
oil.
Since the 1980s, the developing world has become richer, more democratic, and
more peaceful. However, this is only true for countries without oil. Oil-rich
states scattered in the Middle East, Africa, Latin America and Asia, They are
not more democratic and more peaceful than they were three decades ago; some
are even worse. From 1980 to 2006, per capita incomes in Venezuela dropped
by 6 percent, 45 percent in Gabon, and 85 percent in Iraq. Many oil producers
Like Algeria, Angola, Nigeria, Sudan and again Iraq have been frightened by
decades of civil war.These chronic political and economic ailments create what
is called a resource disaster. True, it is a mineral disaster, since these diseases
and disasters are caused by other types of natural resources such as forests,
clean water. Or no fertile land. Among the minerals, oil, which accounts for
more than 90 percent of the world's mineral trade, poses the biggest problems
for most countries. The resource disaster is the oil disaster.
2-2. public participation
Public participation in the process of adapting people's abilities and talents to
development needs and goals relies on the quantity and quality of political and
social institutions and cultural currents and practices of that community without
causing severe disruption to people's personal, family, and social spaces.
Permanently provides new products, methods, jobs, criteria and goals for people
and society and provides space for its implementation. Expansion of these
institutions and processes and lifestyles is not an easy task, it is impossible in
the short term and requires a long and sustained planning based on community
structures.All efforts in this direction, with the aim of achieving a proper
development process, should be regarded as a key infrastructure investment, as
long as there is no suitable space and early incentives, investments Physical and
economic cannot be the source of lasting effect. Therefore, for underdeveloped
societies that seek to design endogenous and sustained growth patterns, these
investments have a key role and priority to play in the process of their
development, priority, quantity and quality.The presence of people in the
development process is essential. This is so essential that without this
participation, comprehensive, sustained and sustainable development research is
impossible. The presence and participation of people in decision-making means
effective exchange and The interplay of science and information is the
continuous monitoring and control of the state. The direct role of the people as
long as the goals and resources of government and society are not in harmony
with one another, possible development means their awareness of the social,
political and economic situation. , The culture and security of a country and the
world, as well as the knowledge, knowledge of its past, present, future, present
and future, and other It has been and without this presence may have tasted a
country for short periods of time, but development is not possible because
development is with people and for people. The economic and social problems
of underdeveloped societies are the result of the historical backwardness of the
social, cultural and economic systems of these countries, and teach us that a
way to reach a society that meets today's needs of development is to use and use
it seriously. There are no human, economic, and cultural potentialities. There is
no way to achieve such a goal except to engage people in matters of democracy
and practice, with judiciary security, freedom of the press, pen and speech and
party freedom. Development takes place in the context of partnership, not in the
field War and strife. The dominant aspect of wars and conflicts throughout
history has been and will be the inability of societies to find forms of public
participation. Not much involved in development campaigns, they feel a gap
between themselves and the government, which is the biggest factor leading to
despotism. Tyrannical methods, instead of allowing development and
modernization, are a major obstacle to the solution. The new economy, with
more freedom of expression and better feedback between rulers and government
officials, encourages greater participation of people in decision-making.
Freedom is one of the essential human rights and an essential component of
democracy (Sattarifar, 1995).
3. Research Background
Akani et al. (2003) examined the impact of oil rent on economic growth in a
study. They used theoretical and empirical data to examine the curse of
resources in 47 oil-exporting countries, including Africa, during the 1970-2000
period, using panel data. They concluded that the resource curse in these
countries was not due to Dutch diseases and the effects of the exchange rate;
rather, the lack of democracy in these countries created oil rents, thereby
slowing economic growth in these countries. Given this relationship of variables
such as per capita income, investment to GDP ratio, oil wealth, quality Eddie,
real per capita income, population growth and the exchange rate used.
Vantchegon (2004) has also examined the impact of natural resources on
economic growth in democratic governments. In his research he used Gini
coefficients, the ratio of exports to GDP and the degree of government
concentration. To increase democracy, but if the increase in income from wealth
causes democracy to disappear. Economists such as Romer (1970) and Lewis
(1989) emphasize the positive relationship between abundance of natural
resources and economic growth. Papyrakis and Grloff (2004) examined the
direct and indirect effects of natural resource abundance on economic growth
and concluded that When natural resources are considered as an explanatory
variable alone, it has a positive effect on growth, but when other explanatory
variables such as corruption, investment, degree of openness of the economy,
exchange relationship and education are included in the model, the effects are
negative. Is. Elusi and Elagunjo (2005), for Nigeria during the period 20032008, showed that the production and export of the country's agricultural sector
has stagnated with oil boom and rising oil prices. Bronzchweiler (2006) found a
positive and significant relationship between economic growth and abundance
of natural resources. In this way resources reduce investment, years of
education, commercial openness, and research and development costs and
corruption in society. Oomes and Calcheva (2007), by examining the Dutch
disease hypothesis in Russia using real exchange rate indices, declining industry
growth and increasing services, showed that rising oil prices led to declining
industry And the employment growth growth in this sector. Jim and Adland
(2010) examined the phenomenon of resource curse in the United States and
concluded that an increase in natural resources in these different states would
reduce economic growth.Boyce and Herbert Amery (2011) also found a
negative relationship between natural resources and economic growth.
In general, countries whose economies rely on natural resources have
experienced examples of development failures, in contrast, countries with less
abundant natural resources (such as Japan, Hong Kong, Korea and Ireland) have
lower rates. It has experienced higher economic growth, and the third group
includes countries that, despite their dependence on primary resources, have
good economic growth performance (such as Norway and Botsvana). For many
developing countries, finding valuable natural resources can have strange
consequences, And sometimes have harmful politics. In countries rich in oil,
less democracy, less economic stability, and civil wars are more common than
countries without oil. Since the 1980s, the developing world has become richer,
more democratic, and more peaceful. However, this is only true for countries
without oil. Oil-rich states scattered in the Middle East, Africa, Latin America
and Asia, They are not more democratic and more peaceful than they were three
decades ago; some are even worse. From 1980 to 2006, per capita incomes in
Venezuela dropped by 6 percent, 45 percent in Gabon, and 85 percent in Iraq.
Many oil producers Like Algeria, Angola, Nigeria, Sudan and again Iraq have
been frightened by decades of civil war.These chronic political and economic
ailments create what is called a resource disaster. True, it is a mineral disaster,
since these diseases and disasters are caused by other types of natural resources
such as forests, clean water. Or no fertile land. Among the minerals, oil, which
accounts for more than 90 percent of the world's mineral trade, poses the biggest
problems for most countries. The resource disaster is the oil disaster.
This study differs from previous studies both in terms of time period and
countries under study. In this study we used the variables of democracy, size of
government, inflation of trade freedom and volume of oil reserves to investigate
the curse phenomenon of resources. We have used volumes instead of oil
revenues, while most studies have examined the impact of oil revenues on
economic growth. This choice allows us to obtain different results and the effect
of these resources. On democracy and thus on economic growth. The countries
studied in this study b The three income groups (high, middle and low income)
are divided by the World Bank as follows:
Table1. chosen countries
period
countries
group
1960-2012
Australia, america,
England, Denmark,
Norway and canada
High income
1960-2012
Colombia, Malaysia,
iran, gabon, ecuador,
algeria
Middle income
1960-2012
Egypt, india, Indonesia,
Syria
Low income
Source: global bank
4. Research pattern and method of estimation
4-1. Explain the pattern
In this study, we used the model of Alumwa et al. (2003) as follows:
LGDP = C (1)*LGDP (-1) + C (2)*LGOV + C (3)*LOIL + C (4)*DEM + C
(5)*INF + C (6)*LOPE
Where variables are defined in Table 2:
Table2. Introducing variables and source of intel
Source of intel
Explanation
Variable
GDP logarithm at
constant 2005 dollar
prices
LGDP
OPEC(2013) &
BP(2013)
The logarithm of the
volume of oil reserves in
a thousand million
barrels
LOIL
World Bank(2013)
Logarithm of
government size (costs)
at constant 2005 dollars
Democracy or People's
Participation
(Democracy includes
numbers between
negative 10 and positive
10, which also includes
the numbers themselves).
LGOV
World Bank(2013)
The logarithm of trade
freedom is derived from
the sum of exports and
imports on GDP.
LOPE
World Bank(2013)
Consumer Price Index
World Bank(2013)
Center of Global
Polity George mason
university(2013)
DEM
INF
2-4. The static test of variables
Given that the long time period of this study, we examine their static using the
Levine-Levine Chow Test (LLC). Since all variables are static, there is no need
to perform a convergence test.
Table 3.
Low income
Middle income
High income
Variable
Static
Prob.
Static
Prob.
Static
Prob.
LGDP
3.2
0.0007
3.08
0.0010
6.0
0.0000
LGOV
18.86
0.0156
3.2
0.0007
7.89
0.0000
LOIL
3.53
0.0002
6.0
0.0003
5.3
0.0000
DEM
80.68
0.0000
12.11
0.0000
4.5
0.0000
INF
4.68
0.0000
3.2
0.0005
3.4
0.0002
LOPE
2.52
0.0058
6.0
0.0395
8.5
0.0000
RESID
3.82
0.0001
10.0
0.0000
11.06
0.0000
Source: Software Output
1-2-4. Generalized Torque Method (GMM)
One of the suitable econometric methods for solving or reducing endogenous
problem and correlation between variables is estimating the model using
Generalized Moments (GMM). Kasley et al. (1996) (quoted by Nadiri &
Mohammadi, 2011) for the first time The GMM approach used dynamic panel
data to estimate economic growth models. According to Sachs (2003) (cited by
Nadiri and Mohammadi 2011), per capita income should be determined using
dynamic models. (2001) (cited by Nadiri and Mohammadi 2011), have
elaborated on the use of this method in estimating growth models. The GMM
method is a robust estimator that, unlike the maximum likelihood method, does
not require accurate distortion statement distribution information. Fixed or
random effects models, where the error term may be correlated with delay
variables, can lead to inconsistent or biased estimators. When the dependent
variable model appears to the right of the model, The OLS estimates will no
longer be consistent.
2-2-4. Sagan test
The compatibility of GMM estimators depends on the validity of the tools used.
To test this, we use the statistics proposed by Arlando Bond, Blaemann and
Bond, and Arnulo and Believe. This test, called asymptotes, validates the tools
used. Oleaster. The Sargan test statistic, which has a distribution with degrees of
freedom equal to the number of exceedingly specified constraints. Rejects the
null hypothesis that the residuals are correlated with the instrumental variables.
Based on the results of this test, the instrumental variables used in the model
estimation are: They are valid (there is no relationship between the error
components and the tools used). We present the results of the Sagan test in each
model.
Table4. Sagan test results
Low income
Medium income
High income
J-statistic
Prob.
J-static
Prob.
J-static
Prob.
5.6
0.41
1.96
0.135
1.96
0.57
Another test is the autocorrelation of regression residuals. The lack of
autocorrelation indicates that all delayed explanatory variables can be used as
instrumental variables. The results of the autocorrelation analysis of the
difference disordered sentences are presented in the following estimation of
each model.
Table5. Arlanduband test results
Low income
Medium income
High income
Explanation
Prob.
Prob.
Prob.
AR(1)
0.0003
0.0219
0.0032
AR(2)
0.7177
0.3386
0.9733
According to the results of Table 3, it can be stated that the order of
autocorrelation between the disorder statements is first order, therefore, the
Arlanduband method is an appropriate method to eliminate the fixed effects of
the model. In other words, the degree of autocorrelation in the first-order
difference equation of the disorder is first order, therefore, the model estimated
with the first-order end-of-phase difference is an appropriate method for
estimating the model and does not have a model bias.
5. Experimental data and results
The results are presented in Tables 2, 3, and 4 for low-, medium- and highincome groups using the Generalized Momentum Method (GMM).
Table6. Experimental data and results Model Estimation Results in
Low-Income Countries Using the GMM Method
Variable
Low income countries
LGDP(-1)
R-squared
0.93
[51]
(0.0000)
-0.082
[3.82]
(0.0002)
0.02
[1.68]
(0.0838)
0.003
[5.78]
(0.0000)
0.003
[2.80]
(0.0056)
0.018
[3.62]
(0.0004)
0.99
J-statistic
5.16
Prob J-statistic
0.415
LGOV
LOIL
DEM
INF
LOPE
Table7. Experimental data and results Model Estimation Results in
medium-Income Countries Using the GMM Method
variable
Medium income countries
LGDP(-1)
R-squared
1.01
[0.04]
(0.0000)
-0.01
[1.62]
(0.0956)
-0.004
[1.67]
(0.0945)
0.0001
[1.48]
(0.1374)
0.0006
[3.13]
(0.0019)
0.0002
[0.040]
(0.9680)
0.99
J-statistic
1.96
Prob J-statistic
0.135
LGOV
LOIL
DEM
INF
LOPE
Table8. Experimental data and results Model Estimation Results in
high-Income Countries Using the GMM Method
variable
high income countries
LGDP(-1)
R-squared
0.96
[62]
(0.0000)
0.026
[1.75]
(0.0799)
0.05
[2.94]
(0.0035)
0.039
[5.6]
(0.0001)
-0.004
[3.98]
(0.0001)
0.07
[3.55]
(0.0005)
0.99
J-statistic
8.6
Prob J-statistic
0.572
LGOV
LOIL
DEM
INF
LOPE
According to Tables 2, 3 and 4, the results for the low, medium and high
income groups using the GMM method are as follows:
 LGOV: The government log (cost) logarithm of the constant price of US
$ 2000 has a negative and significant effect on both middle and low
income groups, but on high income countries has a positive and
significant effect on economic growth.
 LOIL: The logarithm of oil reserves is thousands of barrels. The volume
of oil reserves in the low income and high income groups has a positive
and significant effect on economic growth, but in the middle income
countries has a negative and significant effect on economic growth.
 DEM: It's democracy or people's participation. Democracy in high
income group and low income group has positive and significant effect
on economic growth and in middle income group has no significant effect
on economic growth.
 INF: Consumer price index. Inflation also has a positive and significant
effect in the low income group and has no significant effect in the middle
income group. In the high income group, it does not have a negative
effect on economic growth.
 LOPE: The logarithm of trade freedom is derived from the sum of
exports and imports on GDP. Commercial freedom in all three income
groups has a positive and significant effect on economic growth.
6-Conclusion
Economic institutions are very important in the rapid economic growth
because they shape the motivations of important economic actors in society.
In particular, their impact is on physical and human investment, technology
and production organization. The difference in economic institutions is the
main reason for the differences in economic growth in countries. Economic
institutions not only determine the potential for economic growth but also
distribute resources in the future. It is assumed that the dominant economic
entity is political power, which Determine the distribution of available
resources. Democracy, despotism, or dictatorship - political institutions - can
be described as an example of the political system. Political institutions have
political power by law, but a group of individuals may, even if they do not
have power through institutions, may They have real political power. They
use any means, including the military, to impose their demands on society.
This powerful group has great ability to exploit basic institutions by
accessing the community's economic resources. Directly and indirectly to
liberal democracy, non-liberal democracy, despotism or dictatorship Are
divided. The worst consequences of the disaster are found in the Middle
East, which holds more than half of the world's proven oil reserves. It is
moving away from democracy, gender equality and economic reform after
other parts of the world (Asthma Oglu, 2004).
In this study, we examine the effect of oil reserves volume on economic
growth in three income groups (high income, middle income and low
income) for the period 1960-2012. GDP with a lag has a positive and
significant effect on all three income groups. Therefore, with the increase in
GDP this year, GDP will increase in the coming year. Government spending
(government size) has a significant and negative effect on both middle and
low income groups, but on high income countries it has a positive effect on
economic growth (as shown in the tables for both middle and high income
groups). The effect of government size on economic growth is significant
with a 90% confidence interval). The size of government can have a positive
or negative effect on economic growth. Clare et al. (1999) state that costs
such as education and government development costs increase economic
growth, but costs such as security and welfare costs do not affect economic
growth. Barrow et al. (1999) and Gartney et al. (1998), as well as Barrow in
1989, indicate that large government impedes economic growth, or that Sala
Martin (1997) showed a weak relationship between economic growth and
government size. The volume of oil reserves in the low-income and highincome groups had a positive and significant effect on economic growth, but
in middle-income countries, it had a negative effect on economic growth.
We can honestly say that there is a curse of resources in the middle income
group, with most countries relying on petroleum income and being mostly
single-product. Countries with lower oil revenues are preventing them from
addressing other sectors of the economy, leading to slower economic growth.
Commercial freedom has a positive and significant effect on economic
growth in all three income groups. It can be said that in the first group
inflation is the engine of economic growth and without inflation there is no
economic growth in these countries, but in the third group, high income,
inflation decreases economic growth. There is a negative relationship with
economic growth rates. Some also believe that inflation is associated with a
positive economic growth rate. At higher threshold rates, the relationship
between these two variables is negative (Soheili et al., 2012). Democracy has
a positive and significant effect on economic growth in the high income and
low income groups and has no significant effect on economic growth in the
middle income group. In these countries, because of the size of the
government, people's participation in economic activity is not very
noticeable, so it does not have a significant effect on economic growth in
these countries, but in the other two groups income will increase economic
growth.
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