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Profit Sharing Between Governments and Multinationals in Natural Resource Extraction: Evidence From a Firm-Level Panel

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  • Margaret S. McMillan
  • Andrew R. Waxman

Abstract

The "fairness" of negotiations between countries and resource extracting firms is subject to many accusations and counter-accusations and may be argued, in many instances, to impact the subsequent economic benefit to a host country from extraction. This paper examines the role of host country governance on the share of government take from extraction revenue. We attempt to disentangle a number of competing hypotheses regarding the relationship between governance and government take using panel data for US resource extracting multinational corporations (MNCs) operating abroad from the Bureau of Economic Analysis of the US Department of Commerce over 1982-1999. Using fixed effects regression, we find a statistically significant positive impact of institutional quality on government take. The nature of this relationship -- whether this represents the result of a "corruption premium" paid by US MNCs or the exploitation of poor governance in negotiating government take -- is not completely clear. The evidence presented does, however, indicate that potential forms of bargaining power other than institutional quality (e.g., outside options to the deal) do increase government take, indicating that bargaining power may nonetheless be an important factor.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13332.

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Date of creation: Aug 2007
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Publication status: published as Brookings Trade Forum Coverage: 1998-2008/2009 Publication of this title ceased in 2009. JSTOR Subjects(s): Business, Economics JSTOR Collection(s): Arts & Sciences VI Collection, Business II Collection, For-Profit Academic Arts & Sciences VI Collection, For-Profit Academic Business II Collection Published by: Brookings Institution Press ISSN: 15205479
Handle: RePEc:nbr:nberwo:13332

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  1. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
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Cited by:
  1. Hajzler, Christopher, 2014. "Resource-based FDI and expropriation in developing economies," Journal of International Economics, Elsevier, vol. 92(1), pages 124-146.
  2. Di Corato, Luca, 2010. "Profit Sharing under the Threat of Nationalization," Working Papers 58292, Swedish University of Agricultural Sciences, Department of Economics.
  3. Rick van der Ploeg & Dominic Rohner, 2010. "War and Natural Resource Exploitation," OxCarre Working Papers 042, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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