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

  • 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)

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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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. Thomas, J. & Worrall, T., 1990. "Foreign Direct Investment And The Risk Of Expropriation," The Warwick Economics Research Paper Series (TWERPS) 342, University of Warwick, Department of Economics.
  2. 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.
  3. Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
  4. Robert T. Deacon & Henning Bohn, 2000. "Ownership Risk, Investment, and the Use of Natural Resources," American Economic Review, American Economic Association, vol. 90(3), pages 526-549, June.
  5. 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.
  6. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
  7. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  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. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, vol. 34(01), pages 65-88, December.
  10. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  11. 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, vol. 27(02), pages 273-287, March.
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