A new GLO Discussion Paper documents that an oil price boom may trigger dissatisfaction with one’s income, and that this dissatisfaction is independent of the effect of the boom on real economic conditions. Using data from Kazakhstan, it seems that the oil price boom creates a gap between people’s expectations of the benefits from the boom and the observed economic conditions.
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GLO Discussion Paper No. 469, 2020
Inflated Expectations and Commodity Prices: Evidence from Kazakhstan – Download PDF
by Girard, Victoire & Kudebayeva, Alma & Toews, Gerhard
GLO Fellow Victoire Girard
Author Abstract: We document that an oil price boom triggers dissatisfaction with one’s income, and that this dissatisfaction is independent of the effect of the boom on real economic conditions. Unique data from Kazakhstan allows us to exploit time, sectoral and spatial variation to identify the impact of the recent oil boom on reported satisfaction with income. Oil related households whose heads are employed in the private sector of the oil rich districts report a decrease in satisfaction with their income during the boom compared to other households (whose heads work in other sectors and/or districts). The estimated drop in satisfaction is statistically and economically significant: a 20% increase in the price of oil decreases satisfaction with income by 1/3 of a standard deviation. We discuss different interpretations of this drop in satisfaction. The only interpretation consistent with our results is that an oil price boom creates a gap between people’s expectations of the benefits from the boom and the observed economic conditions. Our results call for devoting more attention to the dynamic of satisfaction, not only during resource busts, but also during resource booms.
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