Growth in an oil abundant economy: The case of Venezuela

Abstract

Venezuela's growth experience over the past fifty years is characterized by a high economic growth rate from 1950 to 1970 and a low economic growth rate in the last thirty years. Although Venezuela is an oil abundant economy, this growth experience is largely accounted for by the evolution of its real non-oil GDP. We use growth accounting to quantify the extent to which the growth experience in non-oil sector is due to physical capital accumulation and we find that whereas in the period 1950-1980 most of the growth experience is accounted for by the evolution of TFP, this is not the case in the period 1980-1998. Nonetheless, the Venezuelan GDP is mainly driven by non-oil GDP; the use of oil revenues by the government may help us to understand, at least in part, the growth experience of the non-oil sector of the Venezuelan economy. Through the calculation of some correlations, we find a positive correlation of oil rents with physical capital, and of oil rents with non-oil TFP in the period 1950-1970, when the flow of oil rents was relatively high (the good times). However, in the period 1971-1998, there is a negative correlation of oil rents with non-oil TFP and with physical capital. Finally, we construct a simple growth model to study the effect of the oil rents, managed by the government, on private physical capital accumulation.