Oil booms and subnational public investment: a case-study for Colombia

Abstract

Theoretical and empirical studies on oil price shocks have mainly focused on measuring its relationship with macroeconomic performance in developing countries. However, the literature has not explored causal effects of oil price variations on subnational public investment. Using a difference-in-differences strategy, this paper contributes to the literature in identifying these effects for both, departments and municipalities in Colombia. Our results suggest that the most recent oil boom, brought by the rise in international oil prices, had mostly positive and disproportionate effects of public investment on oil producing departments and municipalities. On one hand, departments prioritized their investments in five sectors: recreation and sports, agriculture, transportation, attention to vulnerable population, and justice. On the other hand, for municipalities, four sectors were the most benefited: institutional strengthening, justice, equipment, and recreation and sports. **** RESUMEN: Gran parte de los estudios teoricos y empiricos sobre choques petroleros se han enfocado en medir su relacion con el desempeno macroeconomico en los paises en Desarrollo. Sin embargo, estos estudios no han explorado los efectos causales de las variaciones en los precios del petroleo sobre la inversion publica subnacional. Haciendo uso de diferencia-endiferencias, este documento contribuye a la literatura en identificar estos efectos tanto para departamentos como para municipios en Colombia. Los resultados sugieren que el mas reciente choque petrolero, generado por el aumento en los precios internacionales del patroleo, tuvo en su mayoria efectos positivos y significativos sobre la inversion publica de departamentos y municipios productores. Por un lado, los departamentos priorizaron sus inversiones en cinco sectores: recreacion y deporte, agricultura, transporte, atencion a poblacion vulnerable y justicia. Por otro lado, para los municipios los sectores mas beneficiados fueron: fortalecimiento institucional, justicia, equipamiento y recreacion y deporte.