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Determinants of Expropriation in the Oil Sector: A Theory and Evidence from Panel Data

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  • Sergei Guriev

    (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR))

  • Konstantin Sonin

    ()
    (New Economic School (NES))

  • Anton Kolotilin

    ()
    (MIT)

Abstract

In this paper we study nationalizations in the oil industry around the world in 1960-2002. We show, both theoretically and empirically, that governments are more likely to nationalize when oil prices are high and when political institutions are weak. We consider a simple dynamic model of the interaction between a government and a foreign oil company. The government cannot commit to abstain from expropriation and the company cannot commit to pay high taxes. Even though nationalization is ine? cient it does occur in equilibrium when oil prices are high. The model?s predictions are consistent with the panel analysis of a comprehensive dataset on nationalizations in the oil industry since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low even when controlling for country fixed effects.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0115.

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Length: 28 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0115

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  1. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," NBER Working Papers 10568, National Bureau of Economic Research, Inc.
  2. Thomas, J. & Worrall, T., 1991. "Foreign direct investment and the risk of expropriation," Discussion Paper, Tilburg University, Center for Economic Research 1991-26, Tilburg University, Center for Economic Research.
  3. Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 39-84, February.
  5. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  6. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 835-857, June.
  7. George Baker & Robert Gibbons & Kevin J. Murphy, 1993. "Subjective Performance Measures in Optimal Incentive Contracts," NBER Working Papers 4480, National Bureau of Economic Research, Inc.
  8. Pindyck, Robert S., 1998. "The long-run evolution of energy prices," Working papers WP 4044-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers, Resources For the Future dp-97-20, Resources For the Future.
  10. Moran, Theodore H., 1973. "Transnational Strategies of Protection and Defense by Multinational Corporations: Spreading the Risk and Raising the Cost for Nationalization in Natural Resources," International Organization, Cambridge University Press, Cambridge University Press, vol. 27(02), pages 273-287, March.
  11. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, Cambridge University Press, vol. 34(01), pages 65-88, December.
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