Follow the Money: How Does the Income Flow After an Energy Boom

Weinstein, Amanda and Partridge, Mark and Tsvetkova, Alexandra (2017): Follow the Money: How Does the Income Flow After an Energy Boom.

Abstract

Many U.S. towns reportedly boomed after new technologies in oil and gas extraction, particularly improved hydraulic fracturing, led to rapid development of shale resources. Recent research on the expected economic impact focused on the employment multipliers associated with new oil and gas jobs. Instead, our focus is the impact of oil and gas industry growth on local earnings while paying attention to the distributional effects and assessing how much income seeps out due to the peculiarities of the industry. Our estimation results suggest that oil and gas earnings multipliers are relatively modest and mostly similar to oil and gas employment multipliers, with relatively large shares of the earnings leaving the county on average. Likewise, oil and gas multipliers tend to be smaller or comparable to the estimated multipliers for equal-sized shocks in the rest of the economy, suggesting that oil and gas is not a special industry case. Given the high wages in the sector and the large royalty payments that can go to landowners, these results may be surprising.

• Item Type: MPRA Paper
• Language: English
• Keywords: shale revolution; energy boom; earnings multiplier; economic effects
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity

References

Allcott, H., & Keniston, D. (2014). Dutch Disease or agglomeration? The local economic effects of natural resource booms in modern America. Retrieved from http://www.nber.org/papers/w20508

Bartik, T. (1991). Who benefits from state and local economic development policies? Kalamazoo, MI: W. E. Upjohn Institute for Employment Research.

Betz, M., Farren, M., Lobao, L., & Partridge, M. (2015). Coal mining, economic development, and the natural resource curse. Energy Economics, 50, 105-116

Black, D., McKinnish, T., & Sanders, S. (2005). The economic impact of the coal boom and bust. The Economic Journal, 115(503), 449-476.

Blanco, L., & Grier, R. (2012). Natural resource dependence and the accumulation of physical and human capital in Latin America. Resources Policy, 37, 281-295.

Brown, J. (2014). Production of natural gas from shale in local economies: A resource blessing or curse? Economic Review 99(1), 119-147.

Carrington, W. J. (1996). The Alaskan labor market during the pipeline era. Journal of Political Economy, 104(1), 186-218.

Cavalcanti, T. V. d. V., Mohaddes, K., & Raissi, M. (2011). Growth, development and natural resources: New evidence using a heterogeneous panel analysis. The Quarterly Review of Economics and Finance, 51, 305-318.

Corden, W. M. (1984). Booming sector and Dutch Disease economics: Survey and consolidation. Oxford Economic Papers 36, 359-80.

Freeman, D. G. (2009). The ‘Resource Curse’ and regional US development. Applied Economics Letters, 16(5), 527-530.

Gylfason, T. (2000). Resources, agriculture, and economic growth in economies in transition. Kyklos, 53(4), 337-361.

Gylfason, T. (2001). Natural resources, education, and economic development. European Economic Review, 45(4-6), 847-849.

Holmes, T., & Stevens, J. (2014) An alternative theory of the plant size distribution, with geography and intra- and international trade. Journal of Political Economy 122(2), 369-421.

Jacobsen, G. (2015). Who wins in an energy boom? Evidence from wage rates and housing. Working paper retrieved from http://pages.uoregon.edu/gdjaco/JacobsenBoomWeb.pdf.

Jacobsen, G., & Parker, D. (2014). The economic aftermath of resource booms: Evidence from boomtowns in the American West. The Economic Journal 126, 1092–1128.

James, A. & D. Aadland. (2011). The curse of natural resources: An empirical investigation of U.S. counties. Resource and Energy Economics 33(2), 440-453.

Kelsey, T., Partridge, M., & White, N. (2016). Unconventional gas and oil development in the United States: Economic experience and policy issues. Applied Economic Perspectives and Policy 38(2), 191-214.

Kilkenny, M., & Partridge, M. (2009). Export sectors and rural development. American Journal of Agricultural Economics, 91, 910-929.

Kinnaman, T. (2011). The economic impact of shale gas extraction: A review of existing studies. Ecological Economics, 70(7), 1243-1249.

Kleinhenz and Associates. (2011). Ohio‘s natural gas and crude oil exploration and production industry and the emerging Utica Gas Formation. Ohio Oil and Gas Energy Education Program. Retrieved from https://energyindepth.org/wp-content/uploads/ohio/2011/09/Ohio-Natural-Gas-and-Crude-Oil-Industry-Economic-Impact-Study-September-2011.pdf

Krauss, C. (2017). Texas oilfields rebound from price lull, but jobs are left behind. New York Times, February 19, 2017.

Margo, R.A. (1997). Wages in California during the Gold Rush. NBER Historical Paper No. 101. National Bureau of Economic Research, Cambridge, MA.

Mehlum, H., Moene, K., & Torvik. R. (2006). Institutions and the resource curse. The Economic Journal, 116(508), 1-20.

Michaels, G. (2011). The long term consequences of resource‐based specialisation. Economic Journal, 121(551), 31-57.

Munasib, A., & Rickman, D. (2015). Regional economic impacts of the shale gas and tight oil boom: A synthetic control analysis. Regional Science and Urban Economics, 50, 1-17.

Murshed, S. M., & Serino, L. A. (2011). The pattern of specialization and economic growth: The resource curse hypothesis revisited. Structural Change and Economic Dynamics, 22(2), 151-161.

Papyrakis, E. & Gerlagh, R. (2007). Resource abundance and economic growth in the United States, European Economic Review, 51(4), 1011-1039.

Papyrakis, E. & Gerlagh, R. (2004). The resource curse hyporthesis and its transmission channels. The Journal of Comparative Economics, 32(1), 827-838.

Paredes, D., Komarek, T., & Loveridge, S. (2015). Income and employment effects of shale gas extraction windfalls: Evidence from the Marcellus region. Energy Economics, 47, 112-120.

Sachs, J.D., & Warner, A.M. (1995). Natural resource abundance and economic growth. NBER Working Paper No. 5398. National Bureau of Economic Research, Cambridge, MA.

Sachs, J., & Warner, A. (2001). The curse of natural resources. European Economic Review, 45, 827-838.

Tsvetkova , & Partridge, M. (2016). Economics of modern energy boomtowns: Do oil and gas shocks differ from shocks in the rest of the economy? Energy Economics 59, 81-95.

U.S. Bureau of Economic Analysis. (2014). Local Area Personal Income and Employment. U.S. Department of Commerce. Retrieved from http://www.bea.gov/regional/

U.S. Department of Agriculture Economic Research Service. (2014). County-level onshore oil and natural gas production in the lower 48 States, 2000-11. Retrieved from http://www.ers.usda.gov/data-products/county-level-oil-and-gas-production-in-the-us.aspx

U.S. Energy Information Administration. (2014). Outlook for U.S. Shale Oil and Gas. [July 28, 2015]. Retrieved from http://www.eia.gov/pressroom/presentations/sieminski_01042014.pdf

USC Global Energy Network (2013). Powering California: The Monterey Shale and California’s Economic Future. Retrieved from http://gen.usc.edu/assets/001/84787.pdf

van der Ploeg,F. (2011). Natural resources: Curse or blessing? Journal of Economic Literature, 49, 366–420.

van der Ploeg, F., & Poelhekke, S. (2009). Volatility and the natural resource curse. Oxford Economic Papers, 61(4), 727-760.

Weber, J. (2014). A decade of natural gas development: The makings of a resource curse? Resource and Energy Economics, 37, 168-183.

Weber, J. (2012). The effects of a natural gas boom on employment and income in Colorado, Texas, and Wyoming. Energy Economics, 34(5), 1580-1588.

Weinstein, A. (2014). Local labor market restructuring in the shale boom. The Journal of Regional Analysis and Policy, 44(1), 71-92.