chapter  8
24 Pages

Oil illusion and delusion

Mexico and Venezuela over the twentieth century
WithMaría del Mar Rubio-Varas

The resource curse predicts that countries with inferior institutions will perform worse. However, incentives induce institutional capacity. If economic indicators produce illusions, they may generate wrong incentives. Early on, Mexicans and Venezuelans sensed that oil wealth created mirages. These could not be substantiated until alternative approaches to income (HDI and genuine savings) appeared. Even when Venezuela’s institutions outperformed Mexico’s, we show that Venezuela lived beyond its means for over forty years, while apparently holding a relevant position in the world economy masking a lower level of development. This paved the way to disaster when the downward adjustment settled into place.