Did North Dakota Benefit From Its Oil Boom? Economic Edition

I plan on doing a series of posts investigating how much North Dakota has benefitted from its oil boom, if it has?  I leave this as an open question as I am genuinely curious when you add up all the costs and benefits for the state has it been worth it?  Of course, “worth it” is a normative claim and someone else might weigh the costs and benefits differently than I have but for my own edification I am going to tackle the subject.  I want to explore the entirety of the boom and the whole range of its costs and benefits.  Many proponents of unrestrained fossils fuel extraction will expound on the economic benefits that such activity can bring but of course there are associated political, social, environmental and even economic costs that come with oil and natural gas extraction so they must also be factored in when trying to get at the overall cost/benefit picture.  Specifically, I am going to look at four areas of costs and benefits: economic, social, political, and environmental.  This post will focus on the economic costs and benefits of the oil boom.  Before I begin I would like to also state that my methodology here will be comparative.  I am going to compare North Dakota’s performance on a variety of metrics since the start of the oil boom to the present to that of its souther neighbor – South Dakota.  North and South Dakota are obviously very similar (and of course both were part of the Dakota territory before gaining statehood).  Both states are similar in size – both population and land mass, both states have similar demographic profiles, and both states are agriculture states.  The one big difference between the two (aside from Mount Rushmore and the Black Hills) is North Dakota has oil and South Dakota doesn’t.  Data from the U.S. Energy Information Administration bears this out clearly:

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As can be seen, North Dakota in the pre boom years was producing well over a hundred thousand barrels of oil per day while South Dakota consistently only produces 3-5 thousand barrels per day.  The graph of North Dakota’s crude oil production also highlights when the boom began for North Dakota which is basically around 2006 or 2007.  South Dakota provides a good comparison for North Dakota since they are mostly similar in all ways but one (one has oil and the other doesn’t).  This allows for us to compare their economic, political, social, and environmental performance from 2006 to the present (the oil boom years) to gauge the costs and benefits of oil production for North Dakota.  We can assume that if North Dakota did not have this oil boom its metrics would look similar to South Dakota’s so any deviation (both positive or negative) we can attribute to its oil production.  Of course this is mostly a correlational analysis so not to be taken as the last word on the topic but nevertheless I believe it will provide at least a tentative answer to the title of the post – Did North Dakota Benefit From Its Oil Boom?

State GDP

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It’s clear from this picture that the oil boom in North Dakota contributed greatly to its GDP.  From 1997 to 2011 North Dakota (in blue) and South Dakota (in red) had steady GDP growth and were close in overall terms, but around 2011 North Dakota caught up to South Dakota and surged far ahead.  However, by 2017 it seems that the two have converged again.  So North Dakota did see a big gain in GDP from its oil boom but this graph also highlights the boom and bust nature of oil production as by 2016 and 2017 North Dakota’s GDP fell back down to South Dakota’s level.

Unemployment Rate

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Data on unemployment also shows North Dakota benefited from its oil boom.  An approximate 1% gap in the unemployment rate opens between North Dakota and South Dakota from about 2009 to 2015.  North Dakota’s unemployment rate was less severe and recovered faster from the Great Recession than South Dakota’s.  It should also be noted however, that both states had a lower unemployment rates during and immediately after the Great Recession than many other states.  Also similar to the GDP data, around 2016 North Dakota’s unemployment rate actually surpasses South Dakota’s.  That is very short-lived however but the gap between the two look similar to the pre boom year gap rather than the boom year gaps.


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It terms of wage growth it also appears that the oil boom benefitted North Dakota.  From 2010 on the gap in average hourly earnings between the states increases to about a $5 per hour difference.  This is a pretty large gap considering both states have a fairly low cost of living.  Unfortunately the data here does not go back farther than 2007 so we cannot compare the pre-boom to the post-boom year but the available evidence shows the oil boom years do correlate with an increase in wages for North Dakota.

Median Household Income

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Median household income tells the same story as the previous graphs, from 2009 to 2015-2016 the gap in median household income increased to a greater amount than was previously seen in the pre-boom years in North Dakota.  This is more evidence of an economic windfall for North Dakota from it’s oil boom.

Housing and Rent Prices

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On the consumer side, it should be no surprise that the oil boom in North Dakota also lead to a housing crunch.  As oil production expanded rapidly housing prices and rents in the Baaken also expanded rapidly.  The notorious man camps were one results of this housing/rent crunch.

Poverty Rate

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The poverty data is interesting since it shows North Dakota prior to and during the oil boom has had a lower poverty rate than South Dakota by 1-2.5%.  During the oil boom the gap in the poverty rate between the two states gets a bit bigger.  One thing to note is that the poverty rate increases for both states during the Great Recession (no surprise) and both poverty rates decline afterwords (also no surprise).  North Dakota’s poverty rate does not seem to decline at a greater rate than South Dakota’s so one could state that the oil boom did not have a appreciable effect on decreasing the poverty rate in North Dakota.


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For some reason (perhaps do to my sub-par searching skills) I could not find state level income inequality data by state on FRED.  Therefore I do not have a state by state comparison of income inequality between North and South Dakota to examine.  However, there is data on income inequality by county in each state and this is actually more useful for our purposes here.  The oil production in North Dakota occurs in the western part of the state where the Bakken formation is.  Therefore this chart shows income inequality in four western counties that sit in the heart of oil country (Mountrail, Williams, Mckenzie, and Dunn) in contrast with Cass County which is in the eastern part of the state.  Right off the bat you can see that in three of the four western counties (Mountrail, McKenzie, and Dunn) income inequality (defined as the ratio of the mean income for the highest quintile of earners divided by the mean income of the lowest quintile of earners in a county) increases at a greater rate from 2010 to 2017 than it does in Cass County in which income inequality stays relatively flat for this time period.  For example, in Mountrail county income inequality goes from around 13% in 2010 to 24% in 2015 back down to 21% in 2017.  In Cass county over this time period income inequality went from 14% in 2010 to 13.65% in 2017.  What is also interesting is how income inequality stayed relatively the same for Williams county going from 11% in 2010 to a high of 15% in 2016 and down to 13% in 2017.  We can see from this that for three out of the four western counties sampled here income inequality increased from 2010 to 2017 (unfortunately we don’t have data from prior to 2010 to see what income inequality was like then) while for Cass county in the east it did not change much at all.  This is tentative evidence that the oil boom, while bringing prosperity to some, also increased inequality


Overall we can see that what North Dakota has experienced economically from the oil boom is what one expects from a windfall – big gains in GDP, wages, and jobs but with corresponding increases in certain goods, specifically housing.  Moreover the distribution of this windfall is not even with income inequality increasing in areas at the heart of oil production.  Proponents of unrestrained fossils fuel exploitation will probably say I am understating the economic case however, although I am extremely critical of fossil fuel extraction, I don’t doubt that it has economic benefits and the (admittedly limited) data I looked at here supports that conclusion.  Of course, fossils fuel  extraction does not just have an economic impact it carries with it significant social, political, and obviously, environmental impacts as well.  These are what I will examine in further posts and I do not think they will paint as positive a picture as the economic exploration has.


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