The causal relationship between natural resources and economic growth is intricate, and a definitive conclusion has yet to be reached.
\nThe assessment of natural resources’ role in the economy has become a central concern in economic development, both theoretically and practically. As gleaned from the literature, natural resources may be either a curse or a blessing for an economy.<\/p>\n
Sachs and Warner’s seminal empirical study on the natural resource-economic growth nexus posits that this relationship is negative.
\nSubsequent investigations, however, using different proxies for natural resources or varying sets of control variables and estimation methods, have revealed mixed results.
\nMost studies focus on cross-country analysis, with only a few examining regions within individual countries.
\nAmong those, the majority concentrate on provincial or district levels, leaving the village level unexplored.<\/p>\n
This presentation aims to contribute more empirical evidence to determine whether non-renewable natural resource extractions could enhance or hinder local economic activities.
\nFirst, we examine the impacts of oil production at the village level in Indonesia, utilizing data from approximately 13,000 onshore oil well drilling activities across 1,205 villages, spanning from 1900 to 2012.
\nWe contrast the economic performances of villages that produce oil with those where oil is discovered but does not lead to production.
\nOur identification strategy exploits the random outcomes of oil drilling, where the results dictating whether a location becomes an oil producing village are random.
\nThe findings of this study uncover the existence of a resource curse in the context of local oil and gas extraction.
\nThis curse manifests in significantly negative effects on both the number of small-scale enterprises and the number of workers in small firms.<\/p>\n
Second, we focus on investigating the spill-over effects of natural gas extraction on the neighbour economies, particularly at the district level in Indonesia.
\nWe apply a range of panel difference in-differences approaches by comparing non-gas-producing districts in rich-gas provinces as the treatment group and non-gas-producing districts in scarce-gas provinces as the control group in the period before and during gas boom, 2002-2004 and 2005-2015, respectively.
\nThe findings of this study show that gas windfall increases poverty rate and number of people living below poverty line.
\nThe findings provide evidence that gas windfall is a curse, rather than a blessing for the local economies near gas-extraction sites.<\/p>\n