ABSTRACT
Literature is relatively scarce on the impact of oil rents on substantial elements of economic development in OPEC member countries. Hence, this study determines the impact of oil rents on economic development in OPEC member countries. Specifically, the study investigates the impact of oil rents on the measure of economic development; human development index (HDI). The study also focuses on the impact of oil rents on the components of HDI; per capita income, life expectancy and educational attainment, and examines whether oil rents, alongside relevant variables, impact economic development differently than it impacts the components. Oil rents per capita was used to measure oil rents to control for the channeling down effect of oil rents. Four null hypotheses were stated and tested in line with the objectives of the study. A panel dataset of relevant variables was sourced from the World Bank’s World Development Indicators and Worldwide Governance Indicator, United Nations Development Programme’s Human Development Report, and Transparency International’s Corruption Perception Index database for 12 members of OPEC from 2002 to 2017. The four models were analyzed using pooled OLS. Cross-section dependence tests revealed the pooled OLS estimates were inefficient due to the presence of unobserved heterogeneous individual-specific effect, hence the fixed and random effects where estimated, while the Hausman test was employed to ascertain which is appropriate of the two models. Post diagnostic tests were carried out rendering the models inefficient, and heteroskedastic and autocrrelation consistent estimators were employed. Furthermore, theoretical and empirical literature highlighted the role of institutions, therefore robustness checks were carried out to investigate the impact of different dimensions of institutions on the models. The results of the estimation showed that oil rents had a positive impact on HDI, per capita income, and longevity, while the influence on literacy was statistically insignificant. The institutions estimate was found to be insignificant, however the trend reveals negative (below average) institutions indices for 97% of the OPEC member countries therefore revealing the poor quality of institutions in the group. The results from the robustness checks revealed that government effectiveness, rule of law, and regulatory quality were all significant and maintained a positive impact on economic development, while voice and accountability impacted economic development negatively. The study recommends, amongst others, that OPEC member countries should establish policies and measures that would ensure that oil revenues trickle down, and enhance the overall welfare of the group and individual member countries. Concerted efforts should be made by OPEC member countries to strengthen the quality of institutions at different levels to ensure transparent mechanisms in the utilization of oil rents. Governments of OPEC member countries should increase in their commitment to education to improve its quality in the region.
