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Economics of modern energy boomtowns: do oil and gas shocks differ from shocks in the rest of the economy?

Tsvetkova, Alexandra and Partridge, Mark (2015): Economics of modern energy boomtowns: do oil and gas shocks differ from shocks in the rest of the economy?

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Abstract

The U.S. shale boom has intensified interest in how the expanding oil and gas sector affects local economic performance. Research has produced mixed results and has not compared how energy shocks differ from equal-sized shocks elsewhere in the economy. What emerges is that the estimated impacts of energy development vary by region, empirical methodology, as well as the time horizon that is considered. This paper captures these dimensions to present a more complete picture of energy boomtowns. Utilizing US county data, we estimate the effects of changes in oil and gas extraction employment on total employment growth as well as growth by sector. We compare this to the effects of equal-sized shocks in the rest of the economy to assess whether energy booms are inherently different. The analysis is performed separately for nonmetropolitan and metropolitan counties using instrumental variables. We difference over 1-, 3-, 6-, and 10-year time periods to account for county fixed effects and to assess responses across different time horizons. The results show that in nonmetro counties, energy sector multiplier effects on total county employment first increase up to 6-year horizons and then decline for 10-year horizons. We also observe positive spillovers to the nontraded goods sector, while spillovers are small or negative for traded goods. In metro counties, there are no significant effects on total employment although positive spillovers are present in some sectors. Yet, equal-sized shocks in the rest of the economy produce more jobs on average than oil and gas shocks, suggesting that policymakers should seek more diversified development.

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