Oil Booms and Business Busts: Why Resource Wealth Hurts Entrepreneurs in the Developing World by Nimah Mazaheri (review)

If a book can be timely in its subject matter, offer a new conceptual or theoretical approach, or be both an enjoyable and informative read, its author can rightfully claim an achievement. In Oil Booms and Business Busts, Nimah Mazaheri has ambitiously set out to deliver on all three of these: the conclusion one reaches is that it delivers on all of these in a very satisfying manner.

The book focuses on how small- and medium-sized entrepreneurs in the developing world are impacted by their respective country’s business environment, which has been shaped by having a dominant oil-/natural resource–producing and exporting character. From this, Mazaheri argues that important conclusions can be drawn about the effects of oil windfalls, in terms of a country’s economic prospects, innovation, and the prospects for sustainable diversification.

The book comprises seven chapters, including three case studies. After the introduction, chapters two and three, respectively, survey the impact of oil windfalls on development, and present the author’s theory on oil, policy-makers, and the business environment. Chapter two provides a multinational longitudinal statistical analysis, which illuminates key linkages between oil income and the overall business environment for small and medium-sized enterprises (SMEs) and indications on national economic development.

In the book’s three case studies, Mazaheri seeks to test his theory. The first case study deals with Iran, and does well in navigating the political transitions and decision-making system the country has experienced from a historical perspective, dating back prior to the 1953 nationalization of the oil sector. Interestingly, Mazaheri underscores the commonality between decision-making in pre- and post-1979 Iran.

The second case study compares the political economy of two of India’s states, Bihar and Jharkhand, the former which saw a mining economic windfall through coal, while the latter did not. The purpose of this chapter was to test the generalizability of the Mazaheri’s theory, and the analysis provided here was both illuminating and impressive.

The final case study deals with Saudi Arabia; arguably the most complex in terms of applying the theory presented, as the Gulf states are highlighted in chapter two as being “weak outliners to a general trend of higher oil income and a restrictive business environment” (p. 129). Accordingly, Mazaheri describes the Gulf states, and Saudi Arabia in particular, as characterized by a unique form of monarchial rule that employs “economic familism” (p. 131) in order to balance reform against a maintenance of privileges for elites. As a result, Mazaheri argues, statistical trends with respect to Saudi Arabia display a mixed picture, as the manner in which the ruling elite seek to balance between stakeholders forms the essence of government and the economy. In this regard, Saudi Arabia is presented as having, to an extent, avoided the pitfalls that other stagnating oil economies have suffered. Mazaheri’s observations about Saudi Arabia and the Gulf states appear valid in explaining complexity within the business environment. Furthermore, his findings highlight a degree of national exceptionalism in the applicability of his general theory regarding how resource revenue correlates with natural resource wealth, and rates of innovation and entrepreneurship. While the theory holds its ground on this case study, it is clear that the challenge is one of explaining domestic differences between countries, in terms of how natural resource windfalls lead to a dampening of the rates of innovation and entrepreneurship, and the growth of the SME sector.

What makes Mazaheri’s analysis impressive is that he not only gives focus to the manner in which a dominant natural resource exporting economy can determine whether SMEs can flourish, but he also seeks to examine this through a longitudinal statistical analysis with in-depth case studies. While it is tempting to say that the “rentier state” and the “Dutch disease” arguments offer insights into what those dynamics would be, the importance of this study is...