Geography Curse Natural Resources of the Brazilian Sky


The current increase in energy prices has a strong impact in Europe and more generally in oil and gas importing countries. However, our imports are also the exports of the producing countries, which should benefit in advance from the increase in the prices of their exports. Are high fuel prices good news for them?

Surprisingly, experimental work conducted over a period of nearly thirty years indicates a cautious response. At the macroeconomic level, it has been observed that the countries exporting natural resources are growing at a slower speed than other countries. So we started talking about the curse of natural resources.

Paradoxically, resource-producing countries also enjoy higher per capita incomes. Moreover, if we move from comparisons between countries to comparisons of regions of the same country or from a continent, we notice that those who exploit natural resources do only better. In any case, this is what is observed in the United States, Peru and sub-Saharan Africa. Therefore, we notice a paradox between the ambiguous results at the macroeconomic level and the compatible and optimistic results at the regional level.

To solve it, you must be able to closely monitor the impact of natural resources within the country. This is what our (next) study on Brazil does.

satellite eye

Brazil is a typical case because it produces oil and gas, but in quantities too small to affect its world prices. In addition, the state has adopted a mechanism for the automatic sharing of oil and gas profits between its municipalities depending on the presence of wells on their territory or near their coasts and the passage of oil and gas pipelines.

We can therefore estimate the effect of the price of hydrocarbons on Brazilian municipalities without polluting the estimate with the effect of feedback. It is also possible to clearly distinguish the effect of fuel prices on producing municipalities and on other municipalities, whose incomes are precisely determined through the automatic participation mechanism.

However, there is a major challenge to be faced: measuring economic activity at the municipal level. However, municipal GDP data is not usable because it is subtracted from hydrocarbon production and will therefore result in a filler estimate. The solution came from NASA and data from the Linescan Operational System for Meteorological Satellite Program (DMSP-OLS), which has been listing nighttime light emissions captured by the satellite since 1992.

Light emissions from Brazil captured by satellite in 1992.
The authors are from National Oceanic and Atmospheric Administration data
Light emissions from Brazil captured by satellite in 2001.
The authors are from National Oceanic and Atmospheric Administration data
Light emissions from Brazil captured by satellite in 2013.
The authors are from National Oceanic and Atmospheric Administration data

A body of work carried out over the past 15 years shows that the intensity of light emissions at night provides a reasonable rough estimate of economic activity. Since the satellites measure these emissions with an accuracy of about one square kilometer, they can be aggregated to calculate the light emissions for municipalities.

Another advantage of light emissions is that they react to activity, whatever it is. In particular, it includes not only officially recorded activities, but also the informal or informal economy, which escapes official statistics but is nonetheless an activity. All that remains is to study the relationship between the hydrocarbon revenues obtained by municipalities and their light emissions.

Watch out for the neighbors

Since the purpose of the study is to measure the impact of the price of hydrocarbons not only on producing municipalities but specifically on other municipalities, we may lose relevant information once we study the association between income from hydrocarbons for a municipality and its light emissions.

Resort to spatial econometrics, which is a set of statistical methods that make it possible to correlate the light emissions of a municipality with the emissions of its neighbors, which makes it possible to estimate how the income of a municipality affects its activity as well as the activity of municipalities. surrounding areas, making it possible to measure the indirect effects of one municipality on others.

The findings confirm that oil-producing municipalities benefit from their natural resources: they emit more light when the price of hydrocarbons rises. More specifically, according to our estimates, a 10% increase in revenue from hydrocarbons increases activity measured in light emissions by 1.4%.

On the other hand, the activity of the municipalities located in a radius of 150 km around the producing municipalities is slowing down. However, according to our estimates, the decrease in activity caused by the increase in the income of neighboring municipalities is comparable to what the municipality would gain if its income increased by the same amount. We observe the same phenomenon when we study the evolution of wages.

A tour of the regions

Another way to see spillovers is to work at the regional level by pooling hydrocarbon revenues and light emissions. The effect we note next is the sum of the direct effects of hydrocarbon revenues on the producing municipalities and the indirect effects that they impose on their neighbours, and that their neighbours impose on them.

When we go down this path, we no longer observe a relationship between hydrocarbon yields and activity. The happiness of some was a misfortune for others, and the two influences offset each other on a regional scale.

One hypothesis to explain this result is that in order to develop productive municipalities, they attract workers and capital at the expense of their neighbours. By developing thanks to hydrocarbons, they are thus depriving others of the resources necessary for their development.

The results of the study confirm the geographical dimension of the impact of the exploitation of natural resources on the activity. What a boon for municipal production could be a curse on their neighbours, at risk of increasing regional inequalities and stirring up political tensions. For the exploitation of natural resources to be equitable and politically sustainable, it must be accompanied by a mechanism for their benefit-sharing and a policy for land-use planning.


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Written by mbenfoddil

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