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?

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: employment growth, job multipliers, energy boom effects, instrumental variable approach
• 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 > Q3 - Nonrenewable Resources and Conservation > Q33 - Resource Booms; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

References

Alexeev, M., & Conrad, R. (2009). The elusive curse of oil. Review of Economics and Statistics, 91(3), 586-598.

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

Angrist, J. D., & Pischke, J.-S. (2008). Mostly harmless econometrics: An empiricist's companion: Princeton university press.

Angrist, J. D., & Pischke, J.-S. (2014). Mastering'metrics: The path from cause to effect: Princeton University Press.

Bartik, T. J. (1991). Who benefits from state and local economic development policies? Books from Upjohn Press.

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

Bhattacharyya, S., & Hodler, R. (2010). Natural resources, democracy and corruption. European Economic Review, 54(4), 608-621.

Bjorvatn, K., Farzanegan, M. R., & Schneider, F. (2012). Resource curse and power balance: Evidence from oil-rich countries. World Development, 40(7), 308–1316.

Black, D., McKinnish, T. G., & Sanders, S. G. (2005). Tight labor markets and the demand for education: Evidence from the coal boom and bust. Industrial & Labor Relations Review, 59(1), 3-16.

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

Boxall, P., Chan, W., & McMillan, M. (2005). The impact of oil and natural gas facilities on rural residential property values: A spatial hedonic analysis. Resource and Energy Economics, 27, 248-269.

Boyce, J. R., & Herbert Emery, J. C. (2011). Is a negative correlation between resource abundance and growth sufficient evidence that there is a “resource curse”? Resources Policy, 36(1), 1-13.

Brown, J. (2014). Production of natural gas from shale in local economies: a resource blessing or curse? Economic Review(Q I), 1-29.

Brown, J., & Lambert, D. M. (2016). Extending a smooth parameter model to firm location analyses: The case of natural gas establishments in the United States. Journal of Regional Science, n/a-n/a. doi:10.1111/jors.12280

Brunnschweiler, C. N., & Bulte, E. H. (2008). The resource curse revisited and revised: A tale of paradoxes and red herrings. Journal of environmental economics and management, 55(3), 248-264.

Carmignani, F. (2014). The spatial curse of natural resources. Retrieved from

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.

Dorfman, J. H., Partridge, M. D., & Galloway, H. (2011). Do natural amenities attract high-tech jobs? Evidence from a smoothed Bayesian Spatial Model. Spatial Economic Analysis, 6(4), 397-422. doi:10.1080/17421772.2011.610811

Duranton, G., & Turner, M. A. (2011). The fundamental law of road congestion: Evidence from US cities. American Economic Review, 101(6), 2616-2652.

Fallah, B., Partridge, M., & Olfert, M. R. (2011). New economic geography and US metropolitan wage inequality. Journal of Economic Geography, 11(5), 865-895.

Fallah, B., Partridge, M., & Rickman, D. S. (2014). Geography and high-tech employment growth in US counties. Journal of Economic Geography, 14(4), 683-720.

Fleming, D. A., & Measham, T. G. (2014). Local job multipliers of mining. Resources Policy, 41(C), 9-15.

Frankel, J. A. (2010). The natural resource curse: a survey. Retrieved from

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

Glaeser, E. L., & Gottlieb, J. D. (2008). The economics of place-making policies. Retrieved from

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 eevelopment. European Economic Review, 45(4-6), 847-849.

Gylfason, T., Herbertsson, T. T., & Zoega, G. (1999). A mixed blessing: Natural resources and economic growth. Macroeconomic Dynamics, 3(02), 204-225.

Gylfason, T., & Zoega, G. (2014). The Dutch Disease in reverse: Iceland's natural experiment. Retrieved from http://EconPapers.repec.org/RePEc:oxf:oxcrwp:138

Haggerty, J., Gude, P. H., Delorey, M., & Rasker, R. (2014). Long-term effects of income specialization in oil and gas extraction: The U.S. West, 1980–2011. Energy Economics, 45(0), 186-195.

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

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

James, A., & James, R. G. (2011). Do resource dependent regions grow slower than they should? Economics Letters, 111(3), 194-196.

Kelsey, T. W., Partridge, M. D., & White, N. E. (2016). Unconventional gas and oil development in the United States: Economic experience and policy issues. Applied Economic Perspectives and Policy, 38(2), 191-214. doi:10.1093/aepp/ppw005

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

Lewbel, A. (2012). Using heteroscedasticity to identify and estimate mismeasured and endogenous regressor models. Journal of Business & Economic Statistics, 30(1), 67-80.

Manzano, O., & Rigobon, R. (2001). Resource curse or debt overhang? National Bureau of Economic Research Working Paper Series, No. 8390.

Marchand, J. (2012). Local labor market impacts of energy boom-bust-boom in Western Canada. Journal of Urban Economics, 71(1), 165-174.

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), 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.

Nolan, C., Morrison, E., Kumar, I., Galloway, H., & Cordes, S. (2011). Linking industry and occupation clusters in regional economic development. Economic Development Quarterly, 25(1), 26-35.

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

Paredes, D., Komarek, T., & Loveridge, S. (2015). Income and employment effects of shale gas extraction windfalls: Evidence from the Marcellus region. Energy Economics, 47(0), 112-120.

Partridge, M., & Rickman, D. (2006). An SVAR model of fluctuations in U.S. migration flows and state labor market dynamics. Southern Economic Journal, 72(4).

Partridge, M., Rickman, D. S., Olfert, M. R., & Ali, K. (2012). Dwindling US internal migration: Evidence of spatial equilibrium or structural shifts in local labor markets? Regional Science and Urban Economics, 42(1), 375-388.

Peach, J., & Starbuck, M. (2011). Oil and gas production and economic growth in New Mexico. Journal of Economic Issues, XLV(2), 511-526.

Ross, M. L. (1999). The political economy of the resource curse. World politics, 51(02), 297-322.

Sachs, J., & Warner, A. (1999). The big push, natural resource booms and growth. Journal of Development Economics, 59(1), 43–76.

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

Sala-I-Martin, X., Doppelhofer, G., & Miller, R. I. (2004). Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach. American Economic Review, 94(4), 813-835.

Sala-i-Martin, X., & Subramanian, A. (2013). Addressing the natural resource curse: An illustration from Nigeria. Journal of African Economies, Centre for the Study of African Economies (CSAE), 22(4), 570-615.

Sargan, J. D. (1958). The estimation of economic relationships using instrumental variables. Econometrica: Journal of the Econometric Society, 393-415.

Sovacool, B. (2014). Cornucopia or curse? Reviewing the costs and benefits of shale gas hydraulic fracturing (fracking). Renewable and Sustainable Energy Reviews, 37, 249-264.

Stock, J. H., Wright, J. H., & Yogo, M. (2002). A survey of weak instruments and weak identification in generalized method of moments. Journal of Business & Economic Statistics, 20(4).

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

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

Weber, J. G. (2014). A decade of natural gas development: The makings of a resource curse? Resource and Energy Economics, 37(0), 168-183.

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

Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data: MIT press.

Wooldridge, J. M. (2013). Introductory Econometrics: A Modern Approach (5 ed.). New Delhi: Cengage Learning.