De-Industrialization

A 2011 article that examines the long-term relationship between natural resource
reliance and regime type across the world from 1800 to 2006 reports that increases in
natural resource reliance do not induce authoritarianism. With a focus on alleviating the
methodological biases of earlier studies, the authors find evidence which suggests that
increasing reliance on natural resources promotes democratization, the opposite of
what the Resource curse theory suggests. The researchers provide qualitative evidence
for this fact across several countries both here, and in another article; as well as
evidence that there is no relationship between resource reliance and authoritarianism in
Latin America. The main methodological bias of earlier studies, the authors claim, is the
assumption of random effects: "Numerous sources of bias may be driving the results [of
earlier studies on the resource curse], the most serious of which is omitted variable bias
induced by unobserved country-specific and time-invariant heterogeneity." In other
words, this means that countries might have specific, enduring traits that gets left out of
the model, which could increase the explanation power of the argument. The authors
claim that the chances of this happening is larger when assuming random effects, an
assumption that does not allow for what the authors call "unobserved country-specific
heterogeneity".
These criticisms have themselves been subject to criticism. One study re-examined the
Haber-Menaldo analysis, using Haber and Menaldo's own data and statistical models. It
reports that their conclusions are only valid for the period before the 1970s, but since
about 1980, there has been a pronounced resource curse. Authors Andersen and Ross
suggest that oil wealth only became a hindrance to democratic transitions after the
transformative events of the 1970s, which enabled developing country governments to
capture the oil rents that were previously siphoned off by foreign-owned firms.
A 2008 article by Thad Dunning argues that while resource revenues can promote or
strengthen authoritarian regimes, in certain circumstances they can also promote
democracy. In countries where natural resource rents are a relatively small portion of
the overall economy and the non-resource economy is unequal, resources rents can
strengthen democracy by reducing economic elites’ fear of ceding power since social
welfare policies can be funded with resource rents and not redistribution. Dunning
proposes Venezuela’s democratic consolidation during the oil boom of the 1970s as a
key example of this phenomenon.
A 2011 study argues that previous assumptions that oil abundance is a curse were
based on methodologies which failed to take into account cross-country differences and
dependencies arising from global shocks, such as changes in technology and the price
of oil. The researchers studied data from the World Bank over the period 1980–2006 for
53 countries, covering 85% of world GDP and 81% of world proven oil reserves. They
found that oil abundance positively affected both short-term growth and long-term
income levels. In a companion paper, using data on 118 countries over the period
1970–2007, they show that it is the volatility in commodity prices, rather than
abundance per se, that drives the resource curse paradox.
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