U.S. Study Finds Boomtown ‘Curse’

Rocky Mountain counties that prospered during the 1970s oil-and-gas boom are doing worse now than they would have without the boom, a new study says.


The Economic Journal.

The resource curse theory asserts that over-reliance on natural resources like oil, gas and coal in regional economies winds up hurting local economies more than helping. It’s also called the “paradox of plenty,” because a resource that we’d think of as helping build a local economy is actually hurting it, economists say.

Jacobson and Parker looked at 391 rural counties in the Rocky Mountain region of nine states that had booming oil and gas production from about 1975 to 1985. They measured various economic indicators before, during and after the boom.

The researchers chose the Western region, in part, because of similarities it has with current booming natural-gas and oil production in places like North Dakota, Texas and Pennsylvania. “Media portrayals of 1970s Western boomtowns resemble media accounts of oil-fracking boomtowns today,” the scholars wrote. “Media outlets at the time were reporting on the high wages and surplus of available jobs in Western boomtowns, but also on the social disruptions taking place.”

That sounds a lot like media reports of rural North Dakota, for example, which has seen rising populations and rapid changes in the need for infrastructure like housing, grocery stores, restaurants and other basic services.

The study found that after the boom came a period of decline that resulted in those counties faring worse than economists would have predicted.“In the longer run, relative per capita incomes in boom counties became depressed after the bust and showed no clear signs of recovery at the end of our sample period.”

They also found more joblessness, as measured by increased claims for unemployment benefits long after the energy bust had struck. The study period ended in 1998.

The scholars say the best explanation for the economic decline in the resource-dependent counties was that local workers and businesses became over-reliant on the energy industry. When the oil and gas boom ended, businesses that had catered to the industry and its workers had difficulty adjusting. And workers who had jobs in the energy industry had a hard time using their skills in other kinds of work.