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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



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. 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.
  2. Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
  3. Thomas, Jonathan P. & Worrall, Tim, 1990. "Foreign direct investment and the risk of expropriation," Kiel Working Papers 411, Kiel Institute for the World Economy (IfW).
  4. 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.
  5. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  6. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, vol. 34(01), pages 65-88, December.
  7. Glaeser, Edward L. & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2004. "Do Institutions Cause Growth?," Scholarly Articles 27867242, Harvard University Department of Economics.
  8. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
  9. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1125-1156.
  10. W. J. Henisz, 2000. "The Institutional Environment for Economic Growth," Economics and Politics, Wiley Blackwell, vol. 12(1), pages 1-31, 03.
  11. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts and the Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 39-84.
  12. 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.
  13. Stephen J. Kobrin, 1985. "Diffusion as an Explanation of Oil Nationalization," Journal of Conflict Resolution, Peace Science Society (International), vol. 29(1), pages 3-32, March.
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