Oil Discovery, Political Institutions and Economic Diversification

Abstract

Diversification is touted as a desirable policy objective for oil-rich nations because it reduces exposure to volatility. However, the empirical relationship between petroleum and diversification is not well understood. Here, we test the effect of giant oil discoveries on diversification using a panel dataset of 136 countries observed over the period from 1962 to 2012. We notice non-oil sector export concentration 8 years after a discovery. However, we do not observe any effect on the structure of employment in non-resource and manufacturing sectors. Democratic political institutions moderate the export and employment concentration effects of petroleum discovery.