The Local Economic Impacts of Hydraulic Fracturing and Determinants of Dutch Disease

In this paper we quantify the local economic impacts of the development of unconventional shale oil and gas reserves through the controversial extraction procedure known as hydraulic fracturing or ``fracking'' and assess the possibility of the boom creating a ``resource curse'' for resource-rich counties. First, using government local economic data matched to highly detailed national oil and natural gas panel data, we estimate the effect that new ``fracking'' installations have on local job growth and average earnings, controlling for time-varying unobserved determinants of job growth, overall, by industry, and by region. We find that overall employment effects are substantial although smaller than some previous studies. Second, we show that shale development increases wages in manufacturing in counties with relatively tight labor markets and little prior oil and gas industry presence. Increased wages in the manufacturing sector suggests the possibility of a loss of competitiveness in some counties with shale oil and gas resources, raising the specter of a future resource curse.