Is Oil Wealth Good for Private Sector Development?

Abstract

When do autocratic rulers in oil-producing countries support private sector development? We argue that the size of oil rents per capita has an important effect on ruler support for the rule of law, respect for private property rights, and other factors that promote private investment. However, the effect is not linear, but instead resembles a U-curve: Only in countries with middle levels of per capita oil wealthwould we expect the state to repress the private sector. At both low and high levels of oil wealth, autocrats interested in regime preservation would support and promote the private sector. Descriptive analyses of governance measures in Middle Eastern oilproducerssituated in comparative perspective offer empirical support for these propositions. These arguments and findings contradict some of the key claims in the resource curse literature but also differ from arguments that offer historically grounded explanations for development among oil exporters.