Heading towards a welfare curse? The interplay of oil ownership and institutions in oil-rich developing countries

Abstract

This article investigates whether oil ownership affects welfare, and whether the effect is influenced by the quality of institutions prevailing in the country. The analysis is based on a sample of 41 oil-rich developing countries during 1984–2005. Using different measure of welfare and employing panel fixed-effects estimation method, the study finds that oil ownership affects welfare. It also finds that the quality of institutions influences the ownership-welfare nexus. In countries with weak institutions, private ownership of oil leads to higher welfare than state ownership, while in countries with strong institutions, state ownership of oil leads to higher welfare than private ownership. The results are useful for oil-rich countries in adopting appropriate policies to maximize the benefits of oil to the nation and improve the quality of life of the people