A regional resource curse? A synthetic-control approach to oil extraction in Basilicata, Italy

Basilicata is a region of Southern Italy where the expansion of oil operations in the 1990s was promoted as an opportunity to foster economic development. Flash-forward to 2020, Basilicata is one of the poorest regions in Italy despite the exploitation of some of the largest onshore hydrocarbon reserves within the European Union. The coincidence of high poverty rates with abundant natural resources suggests that the region is experiencing a ‘resource curse’; however, socio-economic problems predate the oil boom, complicating any causality claim. To disentangle and estimate the effects of oil exploitation, we employ the synthetic control method that compares the actual trends of development indicators of Basilicata with a counterfactual that is created by taking a weighted average of trends of other Italian regions –a ‘synthetic’ Basilicata. The analysis finds that the development of oil operations has generated no detectable improvement to employment, nor to a range of social indicators, nor to educational attainment. The absence of quantifiable beneficial effects is coupled with negative impacts on other dimensions of development that are more difficult to estimate with our method –especially on the environment and human health. Taken together the evidence offers a sobering prospect over the potential of resource-based development for disadvantaged regions in developed countries.