Resource Extraction, Revenue Sharing, and Growth

• In Event: Decentralization and Administrative Unit Fragmentation

Abstract

We examine the economic impacts of natural resource revenue-sharing systems, where central governments transfer a portion of resource revenue to producing regions. Using a natural experiment in Indonesia, we separately identify the effects of shared revenue and resource extraction. Contrary to Dutch disease concerns, shared oil and gas revenue does not harm local manufacturing firms, while extraction promotes manufacturing growth. Both extraction and shared revenue significantly raise local non-oil GDP. We find suggestive evidence of larger gains from shared revenue in areas without onshore extraction, implying central governments could improve aggregate welfare by channeling more resource revenue toward resource-poor areas.

Author

• Traviss Cassidy, University of Alabama