The Unassuming Economist

From a paper by Markus Brueckner, Gabriele Ciminelli, and Norman Loayza:

“We examine the relationship between oil revenue shocks and labor market regulation empirically in a sample of 83 economies spanning 1970–2014. We find that oil revenue gains lead to a deregulation of the labor market in autocracies but have no effects in democracies. Oil revenue losses instead cause a sizeable deregulation in democracies but have limited effects in autocracies. We then consider possible transmission channels. Democracies appear to use the rents stemming from a positive oil revenue shock to increase government expenditures. Rent extraction and economic efficiency considerations are instead both plausible deregulation drivers following oil revenue gains in autocracies, as expenditures are not raised, while gross domestic product and employment gradually increase. Finally, the deregulation following oil revenue losses in democracies is consistent with the crisis-induced-reform hypothesis, as such losses deteriorate the current account and budget balances and increase the probability of a systemic banking crisis.”