Oil, Islam, and Democracy

Introduction and Hypothesis

The common belief in the literature is the democracy is inhibited by oil (or other
mineral wealth). There are several different reasons why scholars think this is so and
those will be explored in more detail below. Interestingly, only one empirical study has
been published in the major academic works looking at a statistical analysis between
democracy and oil.1 This study both expands and narrows the Ross work by focusing on
both Oil and Islam as factors correlating to democracy but by removing mineral wealth as
an explanatory variable since it is not one of interest here.
The major questions that this study asks are: does oil production correlate with
democratic progress, does whether a country identifies itself as an Islamic country
correlate with lower levels of democratic progress, and is it oil or Islam that more inhibits
(or helps) democracy, if either does? According to the literature, both have a negative
effect on democracy (in the statistical equations).2 One should have a more strong
inverse correlation to democracy than the other. That is assuming they are not related
variables, which will also be tested for. It is also assuming that we can be confident of
the statistics in the Ross piece, which I will argue that we cannot.

Literature and Background

Much of the literature that deals with oil wealth and democracy focuses on the
causal mechanism that would need to exist between the two of them. That area of the
literature is so important to this study that it warrants its own section, which you will find
below.
This section will look at the only statistical analysis that currently exists in the
literature and will also look at the general belief of oil’s influence, specifically using
Venezuela as a case study since it exists with copious amounts of oil and nearly none (if
any) Islamic tradition.
When first looking at the influence of oil and democracy, especially when
comparing it to the influence of Islam, it is important to look at states that do have one
but are missing the other. Venezuela offers a good thoroughly researched case study for
this. Venezuela is a democracy (for the time being some would argue thanks to recent
events) but had an autocratic government before and during the discovery of oil there.
This is significant because in a number of other high oil countries, such as the United
States and Norway, democracy was already firmly established when oil was discovered
or at least exploited. These democratic governments do not offer a good view into the
effects of oil because even if oil does have a negative effect on democracy for some
inherent reason their democratic systems were likely too strong to be affected by it in any
manifestation. This is not to say that democracy was not inhibited on some level in these
countries because of it, but rather, just to say that it was not noticeable if it did happen.

1
Ross, Michael L. “Does Oil Hinder Democracy?” World Politics. Vol. 53 (April 2001), pp. 325-61.
2
Ibid.
 Some scholars believe that Venezuelan democracy came about because of oil
wealth. They argue that high oil reserves, a small population in a small country, an upper
class free of conflict and differences, and very little ethnic divisions throughout the
country all were conditions which favored democracy allowing skilled political leaders to
develop it.3 In this case the argument is that oil actually helped bring about democracy.4
How can this then compare with the Middle East (or other oil rich nations), where
many scholars believe that the rentier effect, how it relates to oil, is impeding
democratic progress? One answer is that oil does not have any direct effect on
democracy, at least as an independent variable.
Another example that can be found in the literature of oil helping versus hurting
democracy is during the late 1970s. Increased wealth from oil revenues occurred at the
same time that the Shah of Iran’s government collapsed, perhaps because of increased
pressure of economic riches.5 At the same time, however, Nigeria was moving towards
democratic reforms.6 Here we have examples of two oil rich states, one heading towards
democracy and another heading towards a totalitarian type government.7 I can be argued
that Nigeria had the social institutions and a high enough degree of social pluralism to
make this transition while Iran did not.8 The important aspect about this reason, with
regards to this study, is that it does not have anything to do with oil! Oil, it basically
argues without saying it, is just a secondary variable that does not force any one outcome
to happen but rather creates a new situation where any number of different possibilities
exist.
With evidence pointing towards multiple different ways oil can ‘affect’
democracy and democratization, the Ross study showing oil having a negative impact on
it needs to be carefully examined.
He starts off with the same conclusion, that oil and democracy are inversely
related. With any statistics, however, it is important to try to determine if they started off
3
Romero, Anibal. “Rearranging the Deck Chairs on the Titanic: The Agony of Democracy in Venezuela.”
Latin American Research Review. Vol. 32, No. 1. 1997. pp. 7-36. Also see: Coronil, Fernando. “The
Magic State: History and Illusion in the Appearance of Venezuelan Democracy.” Kellogg Working Paper
no. 112. Notre Dame, Ind.: Kellogg Institute for International Studies, University of Notre Dame;
Alexander, Robert. The Venezuelan Democratic Revolution. New Brunswick, N.J.: Rutgers University
Press; Blank, D.E. Politics in Venezuela. Boston, Mass.: Little, Brown; Levine, Daniel. Conflict and
Political Change in Venezuela. Princeton, N.J.: Princeton University Press; Karl, Terry Lynn. “Petroleum
and Political Pacts: The Transition to Democracy in Venezuela.” In Transitions from Authoritarian Rule:
Latin America, edited by Guillermo O’Donnell and Philippe Schmitter, 196-236. Baltimore, M.D.: John
Hopkins University Press; and Romero, Anibal. Amèrica Latina: Militares, Integraciòn, y Democracia.
Caracas: Insituto de Altos Estudios de América Latina, Universidad Simòn Bolívar. For additional reading
on this subject.
4
Several authors do not agree with the fact that oil was an important factor in this transition. Among them
are Romero, “Rearranging the Deck Chairs…”; Levine, Daniel. “The Transition to Democracy: Are There
Lessons from Venezuela?” Bulletin of Latin American Research. Vol. 4, No. 2. p. 47-61.
5
Penrose, Edith. “Africa and the Oil Revolution: An Introduction.” Affrican Affairs. Vol. 75. July 1976.
6
From 1983 until 1999 Nigeria was once again an authoritarian regime under military rule. This, however,
is a failure of the democratic regime, not necessarily a failure of the transition towards democracy. It is
possible that oil wealth was one of the causes for the military takeover.
7
Some would argue that over time, since 1979, Iran has headed towards democracy just not in a Western
tradition. See Glazov, Jamie. “Symposium: Whither Iran?” FrontPageMagazine.com. June 27, 2003.
Accessed November 1st, 2004 at http://www.frontpagemag.com/articles/ReadArticle.asp?ID=8622.
8
Frank, Lawrence P. “Two Responses to the Oil Boom: Iranian and Nigerian Politics after 1973.”
Comparative Politics. April 1984, pp 295-314.
with this as a basic axiom or if it was simply an hypothesis. With regard to this theory,
the relationship between oil and democracy, even without empirical evidence it is
assumed to be true by a great number of the scholars in the field. The first mistake of this
statistical analysis was likely that the author went in expecting to verify a truth. The
problem with this is that when the equations do not show what you expect, you generally
believe there is something missing or something else you are doing wrong. The equation
and reasoning is then tweaked until the results confirm the conclusion. When you go in
with a theoretical proposition instead of an axiom, you are more likely to believe the data
when it provides evidence that the theory is false than if it is an axiom. Therefore, if you
go into a statistical work with strong beliefs, intentionally or not, those beliefs will taint
the work.
Even if, however, this above situation is not true for the Ross analysis there are
several other potential problems. The first of this is that he uses pooled time-series data.
While this technique is usable, it is important to note its drawbacks. “Pooled analyses,
insofar as they are known at all, are known for special statistical problems...We approve
the design characteristics and are deeply suspicious of reported results.”9
Using pooled models are not bringers of gloom and doom however. It is true that
the “opportunity to be wrong is considerably enhanced when the design is two-
dimensional” but sometimes the interpretive value outweighs the potential error.10
Ross uses an Ordinary Least Squares (OLS) method, probably one of the most
common methods to use for pooled data.11 With the OLS method, however, each data
point is treated independently of every other one. In other words, the structure of the data
is not taken into account. This is important in interpretation of the results, making the β
coefficients on each variable returned potentially not stating what we expect from a
typical cross section or cross time analysis.
The expected constant variance for all cases are likely to be skewed because of a
lack of independence from the variables along the time dimension. For example, if we
consider a democracy measure from one year to the next, the previous year will likely
correlate with the year after almost 100% of the time, especially if the time series is large
enough. This is because what type of government a state has one year relies heavily on
the type of government the state had in the previous years and the type that the
government will have in the coming years. It is a fairly rare occurrence for the type of
government to change in the state system especially compared to a random numeric
sample. This self-correlation can skew the data significantly.
If we look at the equation for a regression we are looking at Y = a + bX + c,
where Y is the dependent variable, X is the independent variable, a is the Y intercept, b is
the slope or the β coefficient and c is the residual. For a multiple regression, there are
more than one bX values; more than one independent variable.
Taking the OLS, your equation looks like:

9
Stimson, James A. “Regression in Space and Time: A Statistical Essay.” American Journal of Political
Science. Vol. 29, No. 4. November 1985. pp. 914-47. Quote from pp. 916.
10
Ibid.
11
Ibid and Ross, “Does Oil Hinder Democracy?”
which further simplifies to β = (X’X)-1X’Y. Here the expected error of covariance and
the uncorrelated error assumptions can be violated by pooled data even easier than non-
pooled.12
Besides for the autocorrelation problem described above, using pooled data can
cause a hederoscedasticity problem. For example, when you have a times series of
Germany oil production (low) included in with a time series of the United States oil
production (high) the United States data will have more room for variation by the simple
fact that the number are bigger. So, if Germany’s production went from 100 barrels of oil
to 500 barrels of oil a day, the nature of that increase (a huge increase by percentage)
would be eclipsed by the United States going from 9,000,000 barrels per day to 9,010,00.
This is a 10,000 increase but as a percentage is not very significant. Ross attempts to
correct for this by standardizing the data by measuring oil exports as a percentage of
GDP. Ross concludes at the end of his article that “a given rise in oil exports will do
more harm in oil-poor states than in oil-rich ones.”13 However, the data suggests that it is
not if the state is oil-poor or oil-rich, but rather if the state is poor or rich. This is an
important distinction because if oil production increased in France (an oil-poor country),
for example, we would not expect oil to be a hindrance to democracy because it would
still represent a low percentage of its GDP. An increase though in Nigeria, however,
might affect democracy even though it is oil-rich because any oil increase will likely
significantly increase the percentage share of GDP oil contributes to since it is a
relatively poor country. He appears to interpret the data as if he used actual oil
production instead of production as a percentage of GDP. His conclusion also assumes
that other statistical problems such as autocorrelation and heteroscedasticity were
successfully corrected for, which is unclear without the diagnostic results of his OLS
regression.
The Ross article is not necessarily incorrect in its interpretation but there is
question to how strong the results fit with what is claimed. Without the diagnostic tools
associated with the regression, the amount of trouble autocorrelation and
heteroscedasticity caused is unknown. The statistical analysis was likely too ambitious
considering there was no other statistical analysis in the field backing up the results. It
would have been more wise to start off with a series of more simple, albeit, less
informative models that could have provided a basis to comfort the reader of this more
advanced model with regard to possible statistical problems. The model put forward in
this paper is one such model, looking at a single year as a case and making the

12
Stimson, “Regression in Space and Time.”
13
Ross, “Does Oil Hinder Democracy,” pp. 356.
assumption that if oil is related to democracy then within any single year we should be
able to see that relationship.
Ross does make several very important contributions to the field however. First
and foremost is that he put the first statistical analysis out there and a fairly
comprehensive one at that. While there are some potential errors or at least cautions in it,
the value of the study itself outweighs this. He also makes the important point that the
Middle East should be included in democracy regressions and analysis. Many scholars
just remove the Middle East from their dataset all-together which makes little sense, he
argues.
Lastly, he provides an equation to use as a basis for future statistical analysis and
also the arguments for why certain variable should be included. This reduces the
workload of a future researcher in this sub-topic as it allows them to concentrate on
potential mistakes and overlooked variable while not having to ‘reinvent the wheel.’

Rentier (causal) Theories

The major theories that try to explain the supposed link between oil and
democracy stem from the rentier theory as a whole. There are three separate ones which
have been isolated from the literature.14 These include the rentier effect, the repression
effect, and the modernization effect.
The rentier effect assumes that as the rent revenues increase, the government is
able to become less accountable to the population. This happens for several reasons.
First, the government is able to tax the population less than it would otherwise need to. If
a population is not being taxed, there is less effort to mobilize against the government for
participation, especially when the other reasons are factored in. The second reason is that
the government is able to spend heavily on the people. This means that the citizens are
getting resources and services (a welfare state) without paying much in the way of taxes.
Pushing for democratic reforms could upset this balance causing more to be lost than
gained. In essence the government is able to keep the citizens content with its existence
by ‘bribing’ them with resources.15
The last reason the rentier effect is suspected of a causal relationship between oil
and democracy is due to social groups. The theory is that the government, with its vast
oil resources (or mineral or other type of rent) is able to prevent social groups from
forming. These groups act as a middle layer typically between the government and the
family calling for greater representation.16
The repression effect is a less benign version of the rentier effect. According to
this causal theory, increased resources allow a government to spend on internal security
which increases government control of the state strengthening the government. This
increase in security might be just because the government can afford it or it might be out
of necessary, increased resources can bring internal war over the control of these
resources.
14
Ross, “Does Oil Hinder Democracy?”
15
In Bruce Buena de Mesquita’s book, International Relations Theory, this is comparable to the circle of
people the autocratic leader is able to ‘pay off’ to support his rule. In this case, the resources are so vast,
that the entire population can be included in this N-group.
16
Ross, “Does Oil Hinder Democracy?”
 The third major theory presented is taken from modernization theory, termed the
modernization effect. This effect basically believes that wealth indirectly inhibits
democracy because if the state acts as a welfare state, there is less need for higher
education in the general population. More education tends to correlate with demands for
democratic reforms. With the population staying relatively undereducated, the theory
believes that democracy will be inhibited.

Methodology

The methodology used in this paper for statistical analysis is ordinary least
squares multiple regression. The variables are taken from 2002 under the assumption that
if the Ross paper’s predictions are accurate and oil wealth does have a negative
correlation with democracy then this should show up under any time constraints, i.e. we
should see the same relationship even when only looking at a one year window.

Model Summary
Model R R Square Adjusted R Std. Error
Square of the
Estimate
1 .632 .399 .382 5.13523
a Predictors: (Constant), LOGGDPCA, Oil production, OIC member countries, OECD country

Coefficients
Unstandardized t Sig.
Coefficients
Model B Std. Error
1 (Constant) .429 4.117 .104 .917
Oil -4.869E-04 .000 -1.529 .129
production
OIC -5.675 .983 -5.775 .000
member
countries
OECD 4.880 1.442 3.384 .001
country
LOGGDP 1.164 1.136 1.025 .307
CA
a Dependent Variable: DEMAUT

model 2

Model Summary
Model R R Square Adjusted R Std. Error
Square of the
Estimate
1 .506 .256 .240 5.69397
a Predictors: (Constant), OECD country, Oil production, LOGGDPCA

Coefficients
Unstandar t Sig.
dized
Coefficient
s
Model B Std. Error
1 (Constant) -8.157 4.257 -1.916 .057
Oil -7.499E-04 .000 -2.145 .034
production
LOGGDP 2.975 1.211 2.458 .015
CA
OECD 5.583 1.593 3.504 .001
country
a Dependent Variable: DEMAUT

Conclusion: comparing the two it seems that Oil substitutes for OIC country if OIC not
included. Islam correlates with lower democracy; oil is just a substitute for Islam (since
they correlate at .44). Yet under the collinearity statistics:

Collinearity Diagnostics
Eigenvalue Condition Variance
Index Proportion
s
Model Dimension (Constant) Oil OECD OIC LOGGDP
production country member CA
countries
1 1 2.847 1.000 .00 .03 .02 .03 .00
2 .989 1.696 .00 .04 .26 .23 .00
3 .787 1.902 .00 .88 .05 .00 .00
4 .372 2.768 .00 .00 .37 .64 .00
5 5.260E-03 23.266 .99 .05 .30 .10 .99
a Dependent Variable: DEMAUT

They don’t appear to show up on the same dimension.

Change in polity as a dep, run with change in oil production doesn’t show any
correlation.

Even looking at the “big oil’ states, no correlation.