Oil price volatility and political unrest: Prudence and protest in producer and consumer societies, 1980–2013

Krishna Chaitanya Vadlamannati and Indra de Soysa

Energy Policy, 2020, vol. 145, issue C

Abstract: Revenue from oil makes countries susceptible to the “resource curse” since rulers have ready access to finance for buying off opposition rather than reform. We explore this issue by examining whether oil price volatility affects anti-government unrest. We argue that in oil-producing countries, low price years generate anti-government protest conditional on a state's access to foreign exchange reserves. The prudent management of oil revenue during boom years can allow some oil-rich states to manage political dissent while others fail. Contrarily, in oil-importing countries, high oil price years increase anti-government dissent, but again, conditional on access to foreign exchange reserves, which allow governments to ease the pain of austerity. Using panel data covering 165 countries between 1980 and 2013 (34 years), we find clear evidence in support of these propositions. Oil-producer countries that are able to resist political Dutch disease and save for “rainy days” are more capable of weathering low-price years. Similarly, oil import-dependent states face higher dissent during high oil price years, but conditional on access to foreign reserves. These results are in line with others that show that some oil producers avoid civil war through heavy public spending. Oil-rich countries should manage oil revenues in ways that allow them to survive the low price years, perhaps by avoiding both economic and political Dutch disease, which will only lead to inevitable regime challenge. The results are robust to alternative data, measurement, sample size, and estimation methods.

Keywords: Oil wealth; Oil price; Dutch disease; Forex reserves; Political unrest (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:145:y:2020:i:c:s0301421520304468

DOI: 10.1016/j.enpol.2020.111719

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