Short answer
When designing products or systems for regions undergoing resource booms, consider the potential for increased local demand and the growth of specific manufacturing subsectors, rather than assuming a general economic downturn for manufacturing.
- Field
- Commercial Production
- Source
- The Review of Economic Studies (2017)
- Method
- Econometric analysis using microdata
- Evidence
- Strong effect
Contrary to the 'natural resource curse' theory, local economies experiencing oil and gas booms see increased wages and growth in the manufacturing sector, particularly in upstream and locally-traded industries. This commercial production research insight is drawn from a 2017 study published in The Review of Economic Studies. Using Econometric analysis using microdata, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When designing products or systems for regions undergoing resource booms, consider the potential for increased local demand and the growth of specific manufacturing subsectors, rather than assuming a general economic downturn for manufacturing.
Natural Resource Booms Boost Local Wages and Manufacturing Output
Contrary to the 'natural resource curse' theory, local economies experiencing oil and gas booms see increased wages and growth in the manufacturing sector, particularly in upstream and locally-traded industries.
The Review of Economic Studies · 2017
Key Findings
- 01Local wages rise significantly during oil and gas booms.
- 02The manufacturing sector does not get crowded out; it grows overall, driven by upstream and locally-traded subsectors.
- 03Tradable manufacturing subsectors may contract, but their productivity remains unaffected, indicating no loss of local learning-by-doing effects.
- 04A county with one standard deviation additional oil and gas endowment averaged about 1% higher real wages over the long term.
Application
Design takeaway
When designing products or systems for regions undergoing resource booms, consider the potential for increased local demand and the growth of specific manufacturing subsectors, rather than assuming a general economic downturn for manufacturing.
How to apply
When assessing the economic viability of a design project in a region known for natural resource extraction, analyze the specific subsectors of manufacturing that are likely to be stimulated by resource booms, and tailor product development accordingly.
Project actions
- 01When researching the economic context for a design project, look for data on local resource endowments and their impact on related industries.
- 02Consider how your design could serve or benefit from the specific types of manufacturing that thrive during resource booms.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +Utilizes a large dataset combining resource endowments with detailed manufacturing data.
- +Provides evidence against the widely discussed 'natural resource curse' theory in a specific context.
Limitations
The study's findings are specific to oil and gas booms in the U.S. and may not apply to other types of resource booms or different economic systems. The definition of 'upstream' and 'locally-traded' subsectors might need careful consideration for your specific project.
Reliability & validity
The study's reliance on comprehensive U.S. Census data and a long time series (1969-2014) enhances its reliability. The use of econometric methods to control for various factors aims to improve validity, though causality can always be complex to establish definitively.
Think critically
How might the specific type of natural resource (e.g., oil vs. rare earth minerals) and the global market conditions for that resource influence the local economic effects observed in this study?
Design Principles
"Resource booms can be leveraged to stimulate localized industrial growth and innovation."
This research challenges conventional wisdom by demonstrating that resource extraction can have positive spillover effects on local manufacturing. Designers and engineers involved in resource-dependent regions should consider how to leverage these booms to foster local industrial development and innovation, rather than assuming a negative impact.
What This Means for Your Design
When oil and gas are found in an area, people get paid more, and factories actually do better, especially those that help with the oil and gas or sell things locally. It's not a bad thing for factories like some people thought.
How to use in your project
- 1.Reference this study when discussing the economic context of your design project, particularly if it is located in a resource-rich area.
- 2.Use the findings to justify the potential market demand for your product or service by linking it to local economic growth drivers.
Add to My Project
Quick Cite
Paragraph starter
Research indicates that natural resource booms, such as those in oil and gas, can positively impact local economies by increasing wages and stimulating manufacturing output, particularly in upstream and locally-traded sectors. This challenges the notion of a 'natural resource curse' and suggests that designers can leverage these economic conditions to identify opportunities for product development and market entry within growing industrial ecosystems.
Source
The Review of Economic Studies
Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America
journal · 2017
View sourceQuestions About This Research
- What does the research say about natural resource booms boost local wages and manufacturing output?
- When designing products or systems for regions undergoing resource booms, consider the potential for increased local demand and the growth of specific manufacturing subsectors, rather than assuming a general economic downturn for manufacturing. Evidence: The Review of Economic Studies (2017).
- Why does "Natural Resource Booms Boost Local Wages and Manufacturing Output" matter for design?
- This research challenges conventional wisdom by demonstrating that resource extraction can have positive spillover effects on local manufacturing. Designers and engineers involved in resource-dependent regions should consider how to leverage these booms to foster local industrial development and innovation, rather than assuming a negative impact.
- How can designers apply this research?
- When designing products or systems for regions undergoing resource booms, consider the potential for increased local demand and the growth of specific manufacturing subsectors, rather than assuming a general economic downturn for manufacturing.
- What were the main findings?
- Local wages rise significantly during oil and gas booms.. The manufacturing sector does not get crowded out; it grows overall, driven by upstream and locally-traded subsectors.. Tradable manufacturing subsectors may contract, but their productivity remains unaffected, indicating no loss of local learning-by-doing effects.. A county with one standard deviation additional oil and gas endowment averaged about 1% higher real wages over the long term.
- What research method was used?
- Econometric analysis using microdata.
- How strong is the evidence?
- Evidence strength is rated Strong effect, based on a 2017 journal from The Review of Economic Studies.
- What should I do differently in my next project?
- When assessing the economic viability of a design project in a region known for natural resource extraction, analyze the specific subsectors of manufacturing that are likely to be stimulated by resource booms, and tailor product development accordingly.
- What are the limitations?
- The study focuses on the U.S. context and may not be directly generalizable to all countries or resource types. The analysis of 'tradable' versus 'locally-traded' subsectors might require nuanced definitions in different design project contexts.