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

The rise in oil and gas prices and drilling activity in the past decade has caused economists and policymakers to reconsider whether natural resource production benefits producer economies or instead creates a "Natural Resource Curse." We use confidential establishment-level data from the US Census of Manufactures and Longitudinal Business Database to estimate the effects of expansions and contractions of the oil and gas sector on growth since the early 1970s. Our approach combines cross-county variation in oil and gas supply with large time series variation in production activity. Oil and gas booms increase growth rates in producer counties by 60 to 80 percent relative to non-producer counties, and a necessary condition for the resource curse is satisfied: local wages increase by 0.3 to 0.5 percentage points per year during a boom. Nevertheless, manufacturing growth is positively associated with natural resource booms. Manufacturing employment and output both rise, in particular in linked sub-sectors, implying that manufacturing firms benefit from increases in local demand.

Speaker: Hunt Allcott, New York University