Revisiting the Oil Curse: Does Ownership Matter?

- Oil-exporting countries need not inevitably suffer from the oil curse.
- Ownership in the oil sector matters for the curse.
- Oil-exporting countries can avoid the curse by adopting an appropriate ownership structure.
- Countries with strong institutions should adopt state ownership and control.
- Countries with weak institutions should adopt private ownership.

SummaryA large body of literature finds a negative relationship between oil abundance and economic growth. The existing empirical evidence on the oil curse, however, does not account for variations in the ownership of oil. This article investigates whether the effect of oil abundance on growth varies with ownership structures. It also investigates whether pre-existing institutional conditions influence the effect of oil abundance across different ownership structures. Using a novel database on ownership structures and employing a panel fixed effects estimation method, it analyzes a sample of oil-exporting developing countries during the period 1984-2005. The results show that the effect of oil abundance on growth varies with ownership structures and is also influenced by the quality of pre-existing institutions. Under state ownership and control, oil abundance reduces growth when the institutional quality is poor, but increases growth when the institutional quality is good. Under private ownership, on the other hand, oil abundance increases growth when the institutional quality is poor, but reduces growth when the institutional quality is good. The results suggest that ownership matters and countries can avoid the oil curse by choosing an appropriate ownership structure given their pre-existing institutional circumstances. The policy advice in this article is: adopt state ownership and control if the institutions are strong, if the institutions are weak, transfer ownership to foreign oil companies.