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Does bad company corrupt good character? A spatial econometric analysis of oil resource management in Africa

Ishmael Ackah (Institute for Oil and Gas Studies, University of Cape Coast-Ghana and Africa Centre for Energy Policy, Accra, Ghana)

International Journal of Energy Sector Management

ISSN: 1750-6220

Article publication date: 31 July 2017

Issue publication date: 18 September 2017

177

Abstract

Purpose

A widely held belief before the 1990s – referred to as the oil-blessing hypothesis – was that oil discovery and production should promote economic growth and development and lead to poverty reduction. However, the so-called ‘oil-curse’ hypothesis, postulated by Sachs and Warner in 1995, challenged this belief, thus provoking a heated debate on the theme. The oil-curse hypothesis has been traditionally tested by means of cross-sectional and panel-data models. The author goes beyond these traditional methods to test whether the presence of spatial effects can alter the hypothesis in oil-producing African countries. In particular, this paper aims to investigate the effects on economic growth of oil production, oil resources and oil revenues along with the quality of democratic institutions, investment and openness to trade.

Design/methodology/approach

A Durbin spatial model, a cross-sectional model and panel-data model are used.

Findings

First, the validity of the spatial Durbin model is vindicated. Second, consistently with the oil-curse hypothesis, oil production, resources, rent and revenues have a negative and generally significant effect on economic growth. This result is robust for across the panel data, spatial Durbin and spatial autoregressive models and for different measures of spatial proximity between countries. Third, the author finds that the extent to which the business environment is perceived as benign for investment has a positive and marginally effect on economic growth. Additionally, economic growth of a country is further stimulated by a spatial proximity of a neighbouring country if the neighbouring country has created strong institutions protecting investments. Fourth, openness to international trade has a positive and marginally significant effect on economic growth.

Originality/value

This paper examines theories and studies that have been done before. However, as the related literature on the growth–resource abundance nexus has rarely examined spatial effects, this study seeks to test jointly the spatial effect and the neighbouring effect on the oil curse hypothesis.

Keywords

Citation

Ackah, I. (2017), "Does bad company corrupt good character? A spatial econometric analysis of oil resource management in Africa", International Journal of Energy Sector Management, Vol. 11 No. 3, pp. 480-502. https://doi.org/10.1108/IJESM-10-2016-0002

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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