13.09.2021 New Open Access Publication: "Oil price shocks, protest, and the shadow economy: Is there a mitigation effect?"

In a new study which is published in Economics & Politics, Phoebe W. Ishak and Mohammad Reza Farzanegan, focus on whether fluctuations in oil prices induce conflict in oil-dependent countries and whether the size of the shadow economy can mitigate these effects.

Foto: Colourbox.de

The study is built on two important strands of economic literature. One concerns the effect of resource rents on political instability and risk of conflict, and the other considers the role of the shadow economy in buffering against social unrest.

Negative oil rents shocks increase pressure on the state to cut subsidies, implement the privatization of public assets, reduce the size of the public sector, and increase tax burden (as in the oil-rich countries around the Persian Gulf).

Our key result shows that declines in oil rents following negative price shocks increase the incidence of protests in oil-dependent economies, but that this effect is significantly mitigated by the size of the shadow economy.

For more details on background of study and empirical results see: