Economic Conditions and Drug Abuse: The Shale Boom’s Impact on the Opioid Epidemic

Medical researchers have generally explained the opiod crisis as a result of a more liberal approach to administering opioid prescriptions for pain management (e.g., Dart et al. 2015). However, a growing field of research has connected demographic and socio-economic factors to variation in drug abuse. This work contributes to a larger literature connecting mortality, morbidity, and other health-related outcomes to economic fluctuations (Ruhm 2000). The most recent empirical evidence implicates declining economic conditions with increased abuse of certain types of drugs for adults (Bassols and Castelló 2016; Ayllón and Ferreira-Batista 2017; Carpenter, McClellan, and Rees 2017; Hollingsworth, Ruhm, and Simon 2017).

This research has largely contextualized changes in drug abuse resulting from adverse economic conditions. This makes sense in light of the theoretical economic foundation of these studies (Stigler and Becker 1977; Becker and Murphy 1988), which posited that drug addiction may result from life setbacks, including unemployment, which stimulate the demand for and addiction to drugs. Yet, it is fair to consider drug abuse dynamics from the perspective of positive changes in economic conditions.

In this paper, we explore how changing economic circumstances impacted drug abuse in the United States. We exploit a large change in economic fortunes associated with the shale oil and gas boom, which was fueled by technological advancements in hydraulic fracturing and horizontal drilling. The boom has been widespread with drilling occurring in 31 states.

We argue that the shale boom offers an ideal context for this study. First, the shale boom had a large effect on local economic outcomes. It led to increased employment and income; royalty and lease signing bonus payments that annually stretch into the billions of dollars; higher labor force participation rates; and spillover activity in non-energy economic sectors. Second, the shale boom has largely been a rural phenomenon. According to Drillinginfo data, more than 80% of horizontal wells drilled in the U.S. since 2000 have been located outside of metropolitan areas. Non-medical prescription opioid abuse is especially high in states with large rural populations and rural residents are more likely to abuse opioid drugs. Lastly, changes in economic conditions are not randomly distributed across the country, and they may co-evolve with drug abuse in response to unobserved policies or social changes. We argue that the shale boom is an exogenous source of variation in economic conditions since both where and when drilling happens are random. This is critical for understanding the causal impact of economic conditions on opioid abuse, separate from other variables.

Our identification strategy exploits variation in the geological extent and quality of the shale across space as an exogenous and strong predictor of local oil and gas production, well clustering, and lease activity. We then use this relationship to understand how the shale boom influenced local opioid abuse. We model the opioid epidemic through nationwide opioid abuse, hospitalization, and mortality data.