The Global Allocation of Extractive Windfalls

The extraction of oil, gas, and minerals generates large economic rents, yet it remains unknown how commodity price windfalls are distributed across the global networks of multinational enterprises (MNEs) that dominate production in most resource-rich countries. We study this question by combining administrative records covering the worldwide profits, revenues, and employees of large MNEs across all jurisdictions, with comprehensive data on their physical extraction activity at the affiliate level. Extractive MNEs have a substantial presence in countries in which they do not extract: downstream and consumption countries, as well as low-tax jurisdictions. Combining differences in firms’ commodity specialization with heterogeneous market price changes in a shift-share design, we find that windfall profits are partly diverted to low-tax jurisdictions. For every additional dollar of consolidated windfall profit, $0.8 accrues to extractive affiliates, $0.2 to tax havens, and nothing to the rest of the group. This diversion intensifies during booms: the share of profits booked in tax havens rises by one percentage point for every 10% increase in group profitability.