More on Parental Co-residence and Student Loan Debt

In my last blog post I had some doubts over the popular economic punditry’s claim that more young adults living at home is due to the increasing reliance on student loans. There are large scale changes in marital status and demographics that also important. I do think that reframing the question to whether student debt causes parental co-residence is valid. In fact, I think parental co-residence is part of the consumption smoothing used by college graduates who face borrowing constraints. Outside standard life-cycle model, I think credit constraints and debt averse behaviour are likely contributing factors.

There are some interesting papers on the subject. Looney and Yannelis (2015) at the Brookings Institute investigate the characteristics that drive default rates. In their analysis of course is the discussion on the burden 2-year community colleges and for-profit colleges share for the increased default rate since 2000. This isn’t really on topic but in Avery and Turner (2012) and a quick look through the Department of Education’s student loan data for default rates shows that the schools classified as for-profit tend to have exceptionally high default rates. Most statistical evidence shows public and private 4 year universities have a substantially smaller default rate. While the popular discussion ignores the difference amongst schools, it is very important for any future policy goal to understand difference amongst institutions. As an investment, attending a 4 year program (as discussed in the last post) remains a “good” deal (leaving this vague due to heterogeneity amongst students).

Back to the question at had, do student loans (or rather the debt) cause parental co-residence post graduation? Bleemer et al. (2015) find evidence of causality using the Federal Reserve Bank of New York’s Consumer Credit Panel. They use the panel and local factors such as housing price, employment rate and student debt in local college. Another paper by Dettling and Hsu (2016) is similar but for the consideration of credit risk and payment delinquency as part of the inquiry in place of considering geographical factors for individuals after a period of independent living. Dettling and Hsu are really interested in the consumption smoothing of young adults post-graduation. Dettling and Hsu find that change in debt portfolios of young adults contributed 32 percent of increases in co-residence with parents between 2005 and 2013.

This leads to me to question my results from my last post. There will be an addendum to them. I believe I already mentioned they were in hast. It’s a good time to remind any readers, that if anything, this blog is me thinking out loud. Nonetheless, the information above, particularly Bleemer et al (2015), is very important and I recommend reading it. On economic situations and living arrangements I recommend Kaplan (2012).

Update

 

Living Arrangments and Student Loans

The discussion surrounding student loans has always been focused on a supposed bubble. College students with debt in the U.S. are thought to be borrowing too much. The debt in popular media is characterized as extremely harmful to their living standards after they graduate. As well, college education is itself questioned when the heavy debt burdens are considered. Large-scale demographic changes are also linked to student loans at times.

Living arrangements broadly speaking are of concern. The number of adults who live with their parents has steadily increased for 50 years (figure 1). With increases in total student loan debt for college-aged individuals growing as well, many link the two to the trend in figure 1.

TotalwithParent

For young adults, there is also a similar trend (figure 2). For what we assume to be surely out of college population, there is an upward change in the number of young adults that co-reside with parents. For the in-college cohort there is less significant amount of variation (figure 3).

There could be many reasons for these living arrangements. This could represent the heavy burden of student loans. Students may not understand the true costs of attending college. The may in fact borrow too much, at least in comparison to the future earnings their major brings. Not only are they borrowing too much but they could also be substantially more debt averse than believed to be. The immediate impact of a heavy debt burden may influence their cohabitation preferences if they want to pay off the loans quickly.

There is some evidence to the debt averse behaviours of college students, one that doesn’t reflect life-cycle model predictions of smoothing. In Rothstein and Rouse (2011)  empirical investigation into an anonymous university’s “no-loans” policy revealed a natural experiment which shows that students do not follow standard model assumptions of consumption smoothing. Regular model assumptions would mean that student loans would impact career and major choices in a very limited manner. By looking at career choices in “public-interest” jobs and gifts to the university, they find the prevalence of student loan debt to have a negative effect on both. To counter their large debt burden, students chose jobs in finance amongst others. Moreover, Rothstein and Rouse argue that credit constraints are the main culprit behind the break down of the lifecycle model due to the effect of debt on defaults in pledges of alumni.

This brings into question whether or not all students have it in their best interest to take up the costs of college. For a while now giving college a try was considered to be a good investment for anyone. However, if college tends to just push students towards well paying jobs in the face of surprising debt tolls then maybe college is harmful to those who cannot make it into finance or other well-paying “knowledge” private sector jobs.

Avery,Turner 175

Avery and Turner (2012) produced the figure above assuming returns to college begin four years after entrance into a college. The opportunity cost in this case is very high. Of course, there is uncertainty these gains. Some, due to heterogeneity among students, earn a greater return to their education. Even among institutions, wages and graduation rates differ tremendously. Avery and Turner note the following:

If individuals can make accurate predictions about whether they will complete college individuals can make accurate predictions about whether they will complete college and what they would earn conditional on attaining a college degree, then most and what they would earn conditional on attaining a college degree, then most of the variation in lifetime earnings outcomes can be attributed to heterogeneity

In fact, Avery and Turner in a footnote reference Chen (2008) that attributes heterogeneity to the wage inequality amongst college graduates. So, one may say that the difference amongst graduates (and for that matter those who actually graduate or drop out) to be determined by aptitude in college. Thus, Avery and Turner conclude that there is no “student loan bubble” due to the gains possible from attending college (with 2-year community colleges and for-profit institutions being the exception) for those who graduate in good standing.

As part of a quick investigation, I looked through the National Longitudinal Survey of Youth from 1997 from around 2003 to 2010. Looking at college financing and living arrangements. The estimated the following latent model:

Screen Shot 2016-06-11 at 3.28.43 PM

By panel random effects logit, for R > 0. The time variant variables are owed college loans, total income, college grants, college family aid and the dependent variable for residence with parents. The time constant variables are race, phd, masters, professional degree and female. From this I found no significant effect, part of that might due to programming error since I am observing an unbalanced panel with limited information on durations.

Demographic choices are far more significant, and even then they aren’t very precise. I did have some difficulty navigating the NLS database to find some way to noting if an individual lived with their parents. I used the date they moved back in with parents but in the dataset there was some issues as it was unclear how long they moved back in and when they moved out. Many respondents validly and invalidly skipped the query. I do not think this result is well identified but my hunch is better data cleaning and choices would not change much. Neither would controlling for macroeconomic effects and marital status.

On living arrangements Pew Research Centre‘s investigation by Richard Fry (2016) points to demographic changes as the leading cause of increased parental residency. I find in general that result to be very complementing to the debt averseness story. There is more to the dynamics of human capital investments than is commonly believed in other discussions. Here, one can see that debt averseness can curb the assumed consumption smoothing but this is masked as young adults unable to get a start in the world. In fact, as has already been discussed, a college education has great returns on investment. For the most part, one must attend college to get a start in the economy.

Students do not enter college knowing exactly what their aims are or have perfect information about their chances at success. This may be the market failure in student loan market, students may not have perfect information. Nonetheless, college education as investment can be viewed as an option to some degree, thus the assumed relationship between living arrangements and student debt implicates student behaviours much more than the life cycle model. It is unlikely that students are so debt averse and ignorant of information they receive while attending college that they are saddled to living with their parents in droves, so much that they are responsible for the trend in the first figures from the Current Population Survey.

This is a very interesting subject. I will be revisiting it as I acclimate myself with NLSY97 dataset. Specifically, I think one could find better data or more information on specifications of the survey’s questions.

Misc:

Stata data file here

CPS data used here , graphs here and here.

Update

Update 2

Libya’s Central Bank(s): Between a Rock and a Hard Place

Libya_Inflation_20082013

Source: EIU

The Central Bank of Libya (CBL) is interesting insofar as such an institution resists to some extent the partitioning of the country. It and the Libyan Investment Authority (LIA), the holder of much of the state’s frozen assets, have tried to treat both governments equally while also ignoring their requests for termination of various staff. This independence held until the House of Representatives (HoR) in Tobruk opened their own office in the city of Bayda and decided two days ago to print their own currency. Not a separate currency, but instead decided to go ahead with the money printing the financial committee at HoR believes is needed. The UN-designated Presidential Council disapproved of the maneuver but then after meeting their competing partners in the HoR they reversed course.

Looking at the graph above, M2 percentage change is negative since 2015. One should note that the Economist Intelligence Unit, and for that matter most data sources I reviewed do not have reliable data on Libya since 2014 (the official start of the current crisis). From 2014 the data above is noted as an estimate by analysts but it does seem to match the internal estimates of the CBL here and here. Nonetheless, I think it’s crucial to see the precarious situation that the CBL, HoR and Presidential Council is placed in with regards to Libyan monetary affairs.

For one, culturally in Libya households have held on to money since depositing cash into commercial banks would limit spending since banks are limiting withdrawals due to cash shortage. This has been a way of life for most Libyans I know. In Tripoli, since 2015, cash withdrawals have been limited to varying degrees. As of recently at major commercial banks it is 500 dinars per customer. The driving factor is both poor economic performance and money hoarding in Libya. In particular, the money supply (generally across all measurements) has been ‘flat’ since 2014 but inflation has crept. Driven by turmoil in the country (likely a supply-side shock). This brings in to question, should the central bank print no matter the consequences to alleviate the cash shortage that effects every day lives or wait for a political solution to occur.

The reason I mention the political solution, is that a large amount of Libyans earn an income from the state, especially young people who traditionally in Libya got their first job working for the government (quick read on the post-revolution economic situation for youth here). However, public revenues have fallen considerably. This has dramatic effect on the aggregate demand of the economy. That and a fall in the productive capacity due to the fall in oil production and increased private sector rigidity really leave the central bank, and more importantly the government(s), in a variable situation.

Screen Shot 2016-05-27 at 12.52.16 PM

Source: Central Bank of Libya, Economic Bulletin 2015Q2

In my opinion, I would bite the bullet and print the money. I don’t think Libya will have sky rocketing inflation due to general low exchange of hard currency due and it’s supply-side constraints that are tied up in politics and war. It is worth it only because it would breath life into the business sectors in Tripoli, Misrata and Benghzai, where idle businessmen can’t pullout their own funds to do work with.

This recommendation and much of the analysis is mired with poor data. Employment information is limited as most sources have the same unemployment rate for Libya over the last 5 years, ranging from 20-35% with not enough detail to compare with other indicators. But the public sector spending fall is clear. In a country that only went through limited privatization before 2011, there is a lot of dependence on the state (health, education, utilities). The current partition is the source of the majority of economic woes in Libya, be it the cash shortage, medical shortage, education delays,  or miscellaneous subsidy delays. In the end, nothing can improve without proper institutions. This is a bit of a cop-out but it remains a true fact about Libya.

Focal Point in the Libyan Civil War?

The current developments between the various parties in Libya, especially following Hafter’s recent interview and the Vienna conference on the 16th of May, have been interesting to say the least. In the variety of analysis on the solutions in Libya, including those editorials endorsing certain figures, there is a lack of understanding where each party stands in bargaining for a position of power.

To simplify the conflict I will do away with the smaller tribal conflicts in the south and the pervasive new crime wave across Libya. The reason is that compared to the other features I will mention they won’t determine the future of Libya, in other words their weight on any future state is negligible. I also don’t think it is important to analyze arms control when one wants to understand why some parties logically don’t give up. Yes, some groups receive weapons through the porous borders and banana republicans in the middle east, the weapons aren’t more useful or effective than brigade size. In the end it’s just bullets and Ak-47s. The technologically threshold has been maximized for almost all belligerents.

There are two sets of conflicts. This is reached by crude simplification of individual conflicts, and the web of allegiances can be bundled together to determine the aggregate conflict (Fajr vs. GNA vs. Dignity).

On the lowest level there are militias that protect regional interests. These interests are the cities they are from, usually they were the militia that removed Gadaffi loyalists in 2011 from said city. The have local support and political support from similar groups that view them as fellows in the fight against Gadaffi. Some groups are multi-city troops. For instance Hafter’s 2014 insurgency against Islamist militias was formed from anti-islamists militias and military units reformed by the General National Congress (GNC) and National Transitional Council (NTC). In the need to keep this analysis broadly about the general conflict, suffusive to say most of the Operation Dignity’s political support comes from Eastern Libya, due to figures from there supporting Hafter and Hafter’s reciprocal support for some of their military figures. In the west, Misratan militias have almost full support in Misrata and contain unique centralized leadership tied to the municipal government of Misrata. Again, due to the war in 2011 the Misrata faction receives political and regional support. This for Misrata extends weakly from Misrata all the way to Zawiyah and the Nafusa mountains. There is a inverse relationship between the distance from Misrata and the acceptance of Misrata based security forces. With the GNA, it seems Misrata may enjoy extended support if it becomes the “LNA” for the Government of National Accord (GNA). There are similar groups in Tripoli, Nafusa Mountains, Zintan, Zawiyah and Sabratha.

The groups mentioned above have alliances amongst each other. In the case of the non-LNA party they have allegiances formed due to cooperation in the revolution and subsequent cooperation to lobby (more accurately threaten) public officials of the first GNC to give out contracts to militias and ban Gadaffi-era officials from military posts amongst other positions. The dignity operation is the formed from former Gadaffi brigades who revolted at sometime in the war, a minority consisting of “new” army trained by the NTC, Zintani city militia and tribal militias From the Northeast.

In the Zintani and GNC government militias conflict, it is a proxy for the general Fajr (Misrata, Tripoli militia alliance)-Dignity conflict. For the last few months there has been a cease fire with territorial control centred around the Gheryan. The point of consideration here is that Gheryan is geographically a focal point. The road to Gheryah from Azziyah leads to the mountain pass to the city and then to much of the Nafusa mountains. Thus behind Geryhan is an expectation that one’s enemy will plan primary checkpoints around the city depending on their geographical starting point.  Much like a river is a common retreat point for armies. It is an equilibrium solution if both parties decide that eventually they prefer to concede (for a limited time), assuming they know each other’s expectation. This same focal point ceasefire is seen going west from Gheryan to the Tunisian border and down to Sebha. Both parties here have not confused their intentions. All parties have it in their best interest to avoid incidents like the Tripoli Airport conflict.

This is not observed in the more political and aggregate conflict. There is no focal point between Hafter and GNC (now GNA). The main reason is information. There have been no clichés, incentives or any informational clues that can solve the tacit bargain for seat of power in Libya. One important consideration is that in any war in which there is tacit limited conflict the consideration of focal points can help parties find some resolution since the war is not zero-sum. Misrata and LNA don’t face each other in conflict at all. There is no way to understand what plan they have as a contingency when they fail. Or what is is the “second” best result. There is clearly here confusion in the conflict. There is no river, no mountain pass, no Nash equilibrium in this limited war.

Moreover, my main argument is that in fact the confusion that leads to the institutional lack of focal point is that inside theses parties, in any of their parts, there is a lack of information on leadership, structure, and goals. Consider Hafter, he was decried by the newly elected parliament before its official formation in Tobruk. Then he was accepted, since then he has yet to appear in front of parliament to report on advancements in their fight against the Shura Council in Benghazi, a militant jihadist group. This lack of communication between a military general and the government makes the door to political reconciliation difficult to open. There is no focal point politically if the goals of Hafter are not known. He may be a rogue general, it is nearly impossible to make an educated guess.

The internal communication issues exist in the alliance between the Libyan Revolutionaries Operations Room (LROR) and Misrata. Besides a few skirmishes in eastern Tripoli that I remember being reported only faintly (only because it was common in Tripoli to attack groups who arrest your militia members for crimes), the alliance is weak. They don’t form a proper operations room or military. They don’t share a point of command in any government. Thus, they don’t share a plan or strategy. The formation of an operations room by the new UN-supported GNA from Misrata brigades and their closest allies is trying to fill this gap by having the Presidential Council become the point of decision making for all militias so that they can eventually organize themselves into a structured command without relying on Gadaffi-era members.  Regardless, they are independent operations with self-involved goals. This makes it unknown to the parliament, the UN, and Hafter what is their internal logic and expectations from the conflict.

The solution is clearly a third party mediator. Sadly the UN has been involved aggressively throughout the process. But when comments by Hafter reveal distaste for UN intervention and LROR threatens to fight a UN-endorsed government one begins to see that mediation is a point of contention amongst the parties.

So, the focal point is non-existent in the Libyan war. The Vienna talks might reveal a new focal point if it pushes the parliament in Tobruk to accept the GNA, causing concessions between groups as a communication channel opens. However, if Hafter remains difficult with the media (and public officials who govern him from Tobruk) and the Tripoli based militias lack internal control then the rising confusion leads to no general political focal point for Libya. Simple symbolic signals are important too. LROR and Misrata brigades don’t have the same uniforms, not between both groups or within each one separately. This further makes Libyans and their opponents skeptical of their current efforts anywhere.

It may seem the details I have discussed here are unnecessary for the conflict resolution. Certainly this thesis of confusion in the game of war is never discussed by any articles I have read on Libya. Articles focus on ideology of groups, which is important when discussing the ISIL, Ansari Alshari, and Shura Council of Benghzi. However, there is little to no use in islamist or liberal labels to explain the rest of the war. To put it bluntly, the most anti-Hafter city is Misrata due to the fear of rogue generals. The experience of Misrata in 2011 is dreadful and the city arguably will need another decade to recover, politically and economically. Same in Benghazi, where militias who use the word “revolutionary,” to excuse their assassinations and murder recked, havoc and killed a beloved ambassador. This experiential perspective of two unique cities in the conflict started the issues we face today. To solve it, some communication must happen so that at least both sides get systemic access to each others true expectations. This seem frightfully simple, and supposing this is the solution I won’t be surprised by the hindsight laden article in any publication noting that dialogue was a solution all along. Dialogue may seem simple in hindsight, but dialogue is hard to do and many individuals are preoccupied with ISIL sleeper cells and new governments. Hardly do they have time to revisit the structure of their command completely and commit to rationalizing the expectations of their enemy.

There is more to discuss about the conflict. In fact, as I noted in one of my previous posts, I find the conflict ripe for the type game theory analysis that deals with information asymmetry and reputation, likely with  multiple equilibria. The question becomes, in which “solution” is Libya a democracy and can one predict it. There is no focal point in Libya and if there is no focal point I can’t adequately predict a resolution.


Sources on militias: http://www.bbc.com/news/world-middle-east-19744533

More updated source: http://www.ecfr.eu/mena/mapping_libya_conflict#cap0

Note: All sources on militias completed by foreign or local sources is bound to be incomplete, like I noted the structures intra-militias isn’t always well defined due to lack of proper leadership and anarchic banditry.

PS I highly recommend Chapter 3 and 4 from Thomas Schelling’s great book, The Strategy of Conflict. There are a lot of great Libyan writers and journalists. Mohamed Eljarh is great. Also, this site  run by Jason Pack, a History PhD at Cambridge University, is wonderful.

 

Lloyd Shapley (1923-2016)

In March Lloyd Shapley sadly passed away . His paper with D. Gale, “College Admissions and the Stability of Marriage”, is fascinating. I am unsure if Shapley set out in 1962 to answer questions in economics explicitly. I say this because this paper really does speak like an economics paper.  Supposing you are matching pairs of people (i.e. marriage), stability is defined as a position in which any person from at least two pairs can leave the pairing for another also willing to leave. A stable position leaves no more room for ordering. Similar to Pareto optimality, you can’t make another person better off without making some else worse off.

The stable marriage problem and the solution to gain optimality and stability is surprisingly easy to understand. Shapley and Gale wrote the paper in very clear English. In fact, they comment on their use of plain English and precise definitions in the concluding remarks:

Most mathematicians at one time or another have probably found themselves in the position of trying to refute the notion that they are people with “a head of figures,” or that they “know a lot of formulas.” At such times it may be convenient to have an illustration at hand to show that mathematics need not be concerned with figures, either numerical or geometrical. For this purpose we recommend the statement and proof of our Theorem 1.

Many more results from this seemly simple problem and their solution to it have been discovered, some in fact very simple but only recognized a few years after the paper. The stable marriages problem algorithm is commonly summarized as:

Screen Shot 2016-04-09 at 6.15.46 PM

Result 1: For any equal number of men and women, the algorithm terminates

Simple Proof:

No single man can be rejected by every single woman. This is because that would mean that all the women are married. But since there are equal numbers of woman and men, this is impossible.

Result 2: When men propose all the men have the best pairing they can get in any stable matching, and women have the worst possible

Simple Proof:

Suppose after the first execution of the algorithm, by contradiction, you create a set of pairs so that any man prefers w’. In the original execution this means he was rejected by w’ in place for m’. So in the arbitrary matching there is no stable position for (m’,w’) as both rather be together. Thus in the executed algorithm, and not the contradictory one, not only does giving each man his best possible stable match give the only stable match for the same set over and over but it is also the best the man can do, assuming they are proposing.

For the women’s choice, supposing again a contradictory set of matchings, M’, but compared to the algorithm’s results the woman prefers the m (from the algorithm) matched to her to m’ matched to her. This means that m, w cause M’ to be unstable unless in the initial algorithm (which we know to be optimal for the man) he prefers the match in M’ to w, which contradicts the fact found in the first part of proof, as the man always prefers the outcome from the algorithm (assuming men propose).

There are various other results, and lots of interesting literature by economists (particularly Alvin Roth) discussing stabling matching algorithms applied to various problems. For instance, matching residences to medical students. Also, there is even more literature in computer science on matching.

Some extra reading on Shapley’s influence can be found here and another piece of mathematics he completed to further economics (with Folkman) can be found here.

For detailed proofs (precise in the way Shapely discusses), and a video worth watching discussing some of the theorems.

Escalation of Commitment in Libya

I should disclose that a lot of topics in economics dealing with political economy and growth theory that I am motivated by come from interest in the affairs of Libya.

Nonetheless, I currently acquired a copy of Thomas Schelling’s The Strategy of Conflict . My interest in the game theoretic nature of the Libyan civil war has occupied my day dreams and detached thoughts for weeks now. In particular, there are two elements of the “game” in Libya I find particularly interesting. First, it is escalation of commitment brought by a sunk cost fallacy and tribalism. The tribalism is essentially a sunk cost fallacy but I think there is a dimension to Arab tribalism that is almost a mapping of what someone thinks the hive mind behaves like.

For instance, in a discussion with a relative, they were oblivious about what was happening in Benghazi or in Sirte or in Derna. Areas where substantial and unusual islamist radicals have flourished. The individual was reasoning because his local area’s leaders have said it doesn’t exist then no one thinks it exists. This is different from the presumption I had that people tied to groups because they were attached to their identity then followed their deeds, but in Libya it is like the group is a short cut to normal thinking. A secondary dimension is added.

Secondly, the proxy war in Libya can exist even when it doesn’t through rumours. While the interests of various Arabic parties and Turkey are murky it doesn’t stop the discussion between militia leaders from divulging into lumping a proxy onto another militia. At times with negligence. Tribalism plus false narrative can certainly fuel the “game”.

The two governments in Libya almost ask to be modelled into a paper. Leaving me to wonder if a game with sunk cost fallacy or escalation of commitment exists and whether simple “narratives” can be reconstructed in a game. I’ll certainly try and find out while the weather is cold this weekend.

Democracy & Oil

Common conjectures on oil rich nations is that they have rampant despotism, militarism and general lacking of democratic institutions. This is mostly due to the examples set by Iraq, Saudi Arabia, Venezuela, Iran, Qatar, and Libya to name a few. But there are some rich countries with what can be seen as good governmental forms that are rich in oil. For example, one can just look at the US, Canada, and Norway as examples. Frequently conflicts amongst the former list of nations surrounds natural resource. This leaves one to wonder if their lack of democratic reform and general economic develop is linked to the abundance of oil.

Analyzing any data could create issues of endogeniety. This mostly comes from what are the expected tenures of despots, how their organization is structured, level of economic freedom within the country, whether the state extracts the oil or not, the rate of oil exploration, war in neighbouring countries, etc. Any of these can in many ways create issues when analyzing panel data of oil extraction, conflict, oil reserves, oil revenues, and so on.

Interestingly enough the general result on democracy and oil from panel data, from Robert Barro, shows a negative correlation between democracy and natural resource production. Which is dummied by oil.

Ross (2001) is even more interesting since it really brings the question of whether “Oil Hinders Democracy” directly to the headline. My conjecture on how the hindrance of democracy occurred relied on the simplification of dictatorial regimes as bandits. Supposing a bandit found a source of wealth to extract from but didn’t want to break enough law to get removed. The existence of oil would attract bandits to government, wherein they would “unjustly” extract the oil for themselves until no profits are to be gained. Essentially, dictators stay in power until a revolution or the profit to be earned is non-existent.

Ross uses a similar concept to the one from my conjecture. He defines “Rentier States” as states that depend on rents from oil. I suppose one can describe dictators as bandits, which is a stone’s throw away from “Violent Rentier”. The “Rentier State” is tested by Ross by adding to his model taxation and government consumption. This is to see if the government itself depends on regular taxation or extraction of oil profits.

The overall results Ross shows are fairly strong and seem to be replicated by Tsui (2011). Ross also finds, similar to Barro, that generalizing from oil to natural resources by including mineral resources shows that indeed they too can impede democracy. Cases like Chile, Angola, and Cambodia ring true. Broadly, the hindrance of democracy is far more common in poor states, after controlling for developed Western states Ross’s results show that oil rich poor states are especially in danger. In Ross’s testing he considers the change in regime if oil worth $10 Billion is discovered (figure 2). The results are chilling in a sense, as clearly seen a country like Canada or US with ~45,000 in income per capita sees no fall in democracy.Screen Shot 2016-01-26 at 1.27.36 PM

What if any implications does this have? I certainly am stumped. One could thank years of good economic institutions for the democracy in OECD nations. Much of growth literature over the years has been surrounding the institutions left over after the colonialism and WWII. The MENA region for this reason may continue to suffer from escaping rentier dictators if the rents are easy to take hold of.