Oil booms leave the poor in the dark

In a new column at VoxEU.org Brock Smith, Thomas McGregor and Samuel Wills make a simple but important point about poverty. That is, one of the biggest challenges in fighting poverty is to know where it is. What the authors offer in this column is a new way to measure poverty by using satellites to count people who live in darkness at night. This shows that the economic benefits of oil booms don’t trickle down to the very poor.

They argue,

Darkness lets us study whether oil booms reduce poverty and inequality.

Total lights in oil-rich countries tend to increase during oil booms. In the period 2002-2013, when the price of Brent crude rose from $20 to over $110 per barrel, illumination and GDP per capita in oil-rich countries grew by nearly one third relative to countries without oil. On average, countries that make a giant oil discovery with a net present value worth 100% of GDP see total lighting increase by almost one fifth, and GDP by 8% after ten years, compared to countries that don’t make discoveries.

But

These booms do not benefit the rural poor. All the extra light during the 2000s oil price boom came from cities and towns, in which illumination grew by 15% and 38%, respectively. The share of people living in darkness stayed the same. New lights did not turn on, and the poor did not move for better opportunities elsewhere. Giant oil discoveries show the same effect. In these cases lighting in towns and cities grew by 15% and 22% respectively after 10 years, but did not cause any lights to be switched on in rural areas. There is some evidence, though, that oil discoveries prompted around 1% of the rural poor to move to towns.

I do wonder if support for governments in many oil rich countries is concentrated in towns and cities and thus those governments focus the benefits of oil on their supporters in towns and cities.