Oil Boom and Saving Rate in OPEC Members

The low rate of economic growth in resource-abundant countries remains as a paradox for economists and socio-political scientists. There have been various explanations for this phenomena. One of the latest explanations considers the under-development of legal institutions as the major factor, which is indicated by non-cooperative and rent seeking behavior of the interest groups, leading to serious economic difficulties. This paper examines the case of oil boom in the context of modern approaches of political economy. The saving rate reaction is explained within the conflicting positions of interest groups in an oil exporting economy. The "Varacity Effect" is introduced and examined, indicating a counter cyclical behavior for the saving rate in a developing economy, where the rise in aggregate consumption may exceed the effects of resource boom. An econometric analysis of oil exporting economies indicates the experience of varacity effect in all OPEC members after the oil boom. In conclusion, it is argued that initiation of certain institutional reforms are crucial for improving the savings behavior and overall performance of resource-based economies.