Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America

Abstract

Do natural resources benefit producer economies, or is there a "Natural Resource Curse,"0 perhaps as the crowd-out of manufacturing productivity spillovers reduces long-term growth? We combine new data on oil and gas endowments with Census of Manufactures microdata to estimate how oil and gas booms affect local economies in the United States. Local wages rise during oil and gas booms, but manufacturing is not crowded out-in fact, the sector grows overall, driven by upstream and locally-traded subsectors. Tradable manufacturing subsectors do contract during resource booms, but their productivity is unaffected, so there is no evidence of foregone local learning-by-doing effects. Over the full 1969-2014 sample, a county with one standard deviation additional oil and gas endowment averaged about one percent higher real wages. Overall, the results provide evidence against a Natural Resource Curse within the United States.

Good Mine, Bad Mine: Natural Resource Heterogeneity and Dutch Disease in Indonesia

“…However, and in line with Allcott and Keniston (2018), we do not find evidence for negative effects on total 3 factor productivity.…”

“…Our empirical results fit a model of reallocation between sectors (Corden and Neary, 1982;Corden, 1984) adapted to multiple regions (Allcott and Keniston, 2014) to which we add labour-intensity of the resource sector. A booming natural resource sector raises the real exchange rate and thereby lowers the competitiveness of other tradable goods producers which sell at prices determined on world markets.…”

“…1 This approach has contributed to our understanding of the underlying mechanisms that may explain the negative aggregate correlation between resource wealth and growth. However, at the local level, and using detailed firm and household data for the US, several studies find positive effects of a local natural resource boom, or at the least no evidence for crowding out of manufacturing firms (Black et al, 2005;Michaels, 2011;Allcott and Keniston, 2018). For developing countries, the evidence is more mixed and ranges from an increase in real income for households close to a large gold mine in Peru (Aragón and Rud, 2013), to more conflict in Colombia (Dube and Vargas, 2013), localised negative tradedsector employment effects in emerging markets (De Haas and Poelhekke, 2016), and an increase in municipal government spending in Brazil that does not translate into higher public goods and services (Caselli and Michaels, 2013).…”

Dutch disease and the oil boom and bust

“…Cavalcanti et al (2016) also find that oil discoveries in Brazilian municipalities have positive spillovers for manufacturing and services. Allcott and Keniston (2018) use an approach similar to this paper and find that oil booms increase manufacturing output in oil-rich United States counties. Somewhat in contrast with these papers, Aragon et al (2015) find that the closure of coal mines in the UK caused increases in manufacturing employment in mining counties, indicating "reverse Dutch disease."…”

Commodity Prices and Growth

“…The empirical literature provides a spectrum of findings ranging from little/no effect (Gelb, ; Sala‐i‐Martin and Subramanian, ; Black et al ., ; Caselli and Michaels, ), positive (Greasley and Madsen, ; Smith, ; Allcott and Keniston, ), to negative effect (Ismail, ; Rajan and Subramanian, ; Charnavoki and Dolado, ; Harding and Venables, ). Our model identifies in the substitutability between labour and commodity a key conditioning factor capable of rationalising this pattern.…”