Investigating Effect of Oil Revenues on Social Capital in Oil Rentier Countries: An Extreme Bounds Analysis Approach (EBA)

The volatility of oil revenues in rentier countries, due to the large share of oil revenue in their economies, affects many variables. Oil revenues can also affect social behavior and culture. Therefore, social capital, as the result of social networks and institutions, can be directly and indirectly affected by oil rents. The review of economic literature suggests that oil revenues could potentially be one of the determinants of social capital in oil-exporting countries. This study seeks to empirically investigate the relationship between oil revenues and social capital in oil-exporting countries using an unbalanced panel data and Leamer sensitivity analysis for the period 1990-2015. In this regard, we estimate 60 regressions according to the extreme bounds analysis. Our study confirms the hypothesis of significant effect of oil revenues on the social capital of oil exporting countries, though this relationship was found to be sensitive to changes in specification and value of the social capital index.  Our results indicate that an increase in oil revenues strongly reduces social capital in rentier countries.