The local human capital costs of oil exploitation

Abstract

This paper explores the local-level impacts of oil exploitation on human capital accumulation in Colombia, a resource-rich developing country. We provide evidence based on detailed spatial and temporal data on oil exploitation and education, using the number of wells to measure treatment intensity at the school level. To derive causal estimates, we rely on an instrumental variable approach that exploits the exogeneity of international oil prices and a proxy of local oil endowments. The results indicate that although oil exploitation does not impact enrollment in higher education, it may negatively affect human capital in Colombia since it generates a delay in the decision to enroll. Furthermore, it incentivizes talent allocation away from STEM and professional degrees. Our results suggest no effect on either the quality of secondary education or tertiary education completion. These results are robust to a number of specification changes, and we stress the role of local markets and spillovers as the main transmission channel. In particular, we find that higher oil production increases formal wages, without finding evidence of a premium to tertiary education enrollment in oil-producing areas, and there is a positive spillover to other economic sectors.