Lancaster University Management School - 54 Degrees Issue 12

W hen you think of Texas, you think of cowboys, cattle, football (the American version) – and oil. Black gold, Texas Tea – crude oil has been a mainstay of the Texas economy since 1901, when a crude oil geyser erupted from the well at Spindletop , starting the fi rst oil boom. Both oil and gas production have remained an important part of the economy ever since, even through declines in production from the mid-20th century, and typical boom-bust cycles that a ff ect the industry. With production spread across a large geographic area – far beyond the realms of Dallas , JR Ewing and Cli ff Barnes – the state provides the perfect environment to look at whether the Natural Resources Curse exists on a localised scale. This phenomenon has emerged in research since the 1990s, with experts consistently fi nding that resource-dependent economies, such as those in Texas where oil and gas are the main industries, have slower long- term growth than those with more diversi fi ed outputs. The belief has been that natural resource-driven economic booms draw resources from non-booming export activities, lead to higher prices of non- tradable goods and services – such as personal services, restaurant meals, real estate and hotel accommodation – and contribute to greater regional specialisation, leaving areas more exposed to the e ff ects of a decline in production or prices. The advent of fracking, extracting oil and gas from shale, has seen another boom in production in Texas, with gas outputs climbing steeply by 2005 and oil production by 2009. Crude oil output nearly tripled between 2009 and 2015, with production often in new regions of the state. This provided us with the opportunity to look at how the state’s endowment of natural resources a ff ected the economic growth rate, as there was a rapid increase in petroleumproduction across many counties in Texasmore or less concurrently. Additionally, new regions were able to enter the industry, adding to the traditional areas that had been extracting oil and gas since the beginning. With the oil and gas industries enjoying a boom period, it would be expected that employment would become more specialised across the 125 counties we analysed with oil and/or gas revenues than in the 49 without any production – that workers would leave other industries and concentrate in those that were producing such great revenues, one factor linked to the resource curse. It is reasonable to suppose that increased levels of oil and gas activity would provide evidence of the ingredients for a resource curse through localised impacts in terms of private sector employment and income in the short to medium-term. If labour is attracted to an extractive industry from other local activities by bidding up wages fromwithin a limited labour supply, then incomes will increase. However, there would be employment declines in other areas, and an increased specialisation. If the local labourmarket does not o ff er the necessary skills, then labour has to be imported, which should see an increase in both employment and income. But despite the large spikes in oil and gas production, we found no evidence of a mass reallocation of employment towards the booming activity, and no tendency towards increased specialisation. If the labour force is elastic, then there should be an increase in overall employment in the a ff ected counties, but there is no evidence of this either. These results are contrary to the substantial increases in activity and the economic booms clearly evident in these areas, butmuch of the employment has been undertaken by large, often multinational, fi rms with headquarters in largemetropolitan areas. This might provide some insight into why long-term positive outcomes on local economies are elusive, as outside fi rms and employment arrive to exploit the opportunity, but do not establish local structures and ownership for their industrial activities. When the period of frenetic activity is over – when prices decline and development slows or stops – they leave with little or no evidence of their having been there. Booms and busts in these industries are essentially an imported employment phenomenon, as localities cannot maintain the required specialised workforce needed for the boom times throughout an entire cycle. A large multinational corporation can more easily do this by taking advantage of the imperfect correlation between booming areas – moving employees around from district to district, county to county, as and when required. As for increases in income, these are felt mainly in those households already in the upper half of the pay scale, while the e ff ects on those lower down are not seen. 24 |