Event Detail

Erik Katovich

The Presource Curse: Anticipation, Disappointment, and Governance after Oil Discoveries

Presented by:
Erik Katovich
Practice Job Talk
Agricultural & Applied Economics
University of Wisconsin - Madison

Thursday, September 30, 2021
3:45 pm-5:15 pm
Taylor-Hibbard Seminar Room (Rm103)
Online - https://go.wisc.edu/esfdvx

Major resource discoveries may cause policymakers to alter their behavior based on expectations of future revenues. Yet discoveries often fail to pan out. Do public spending and political competition increase in anticipation of future windfalls? Are there long-term con- sequences of disappointed expectations? I test for subnational evidence of this “Presource Curse” following a wave of offshore oil discoveries in Brazil between 2000-2017. I exploit a quasi-experiment created by Brazil’s formulaic sharing rules for oil and gas revenues, which allow municipal governments to predict whether they will benefit from exogenous offshore discoveries. Using an original geolocated dataset of 179 major discovery announcements, I estimate dynamic effects of discoveries on municipal public finances, public goods provision, and political competition. I build a model to forecast each municipality’s expected revenues after discovery announcements and find widespread disappointment: only eighteen of 48 municipalities realized even half their forested revenues by 2017. Municipalities do not react immediately to announcements, but ten years on, places where production met expectations enjoy significant increases in revenues (+75%) and spending (+21%) relative to never-treated controls. These municipalities do not, however, show improvements in public goods provision or economic diversification. Disappointed municipalities experience reduced per capita investment (-57%) and education and health spending (-26%) ten years on, suggesting these places are worse off than control municipalities that never received a discovery. Local political competition intensifies after discovery announcements.

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