The Oil Nouveau-Riche and Arms Imports

Countries that strike it rich when exploring for oil and gas often fail to see growth materialise. This paper shows that one way things can go awry is via squandering new wealth, based on future resource revenues, on arms imports. Across developing countries, in the 5 years following a giant oil or gas discovery, arms imports increase by 30% on average. This effect only occurs in non-democracies with high levels of corruption, and there is suggestive evidence that it is driven in part by arms imports from China and Russia, and not by imports from other major arms exporters. These estimates can be interpreted causally as the timing of giant oil discoveries is unpredictable due to the uncertain nature of exploration.