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Gasoline Subsidization and Oil Revenues in the Gulf Region
Abstract
In this paper I make an empirical study of the question whether less democratic oil rich countries use the oil revenues of the state to please the public by subsidizing gasoline. The German Technical Corporation (GTZ) provides biennial data on domestic gasoline prices, displaying large discrepancies in gasoline prices between countries. In GTZ's data set from 2008, all ten countries at the bottom of the gasoline price ladder are crude oil exporters. Six of these ten countries are countries in the Gulf Region. Other crude oil exporters, however, such as Norway, find themselves at the other end of the gasoline price ladder. It has been hypothesized in the natural resource curse debate that economic deterioration in oil rich countries follows from mismanagement of resources, and that this mismanagement of resources follows a political logic. The gasoline subsidization in the Gulf Region calls for more attention to the study of this region in the natural resource curse debate. In addition to the gasoline price data provided by GTZ, I include economic variables from the World Development Indicators, the United Nations, and the Energy Information Administration (EIA). I also include political variables from Freedom House and the Center for Systematic Peace. I make a comparative analysis utilizing this panel data set, with observations from the years 1998 -2008. I run regressions with the domestic gasoline price as my dependent variable. Since the effect on the domestic gasoline price of higher crude oil exports might depend on the level of democracy, I include an interaction term between Freedom House's democracy score and crude oil exports per capita. I also include a range of control variables that possibly affect the domestic gasoline price. An interesting finding from my regressions is that to move from being 'free' via 'partly free' and to 'not free', as defined by Freedom House, has a negative estimated effect on the domestic gasoline price, and the larger the crude oil exports of the country are the stronger is this negative effect.
Discipline
Economics
Geographic Area
Gulf
Sub Area
None