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Why do oil importers diversify their import sources politically? : evidence from U.S. firm-level data

Author

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  • Kashcheeva, Mila
  • Tsui, Kevin K.

Abstract

International politics affects oil trade. But why? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine what kinds of firms are more responsive to change in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To test this hold-up risk hypothesis, we investigate heterogeneity in responses by matching transaction-level import data with firm-level worldwide reserves. Our results show that long-run oil import decisions are indeed more elastic for firms with oil reserves overseas than those without, although the reverse is true in the short run. We interpret this empirical regularity as that while firms trade in the spot market can adjust their imports immediately, vertically-integrated firms with investment overseas tend to commit to term contracts in the short run even though they are more responsive to changes in international politics in the long run.

Suggested Citation

  • Kashcheeva, Mila & Tsui, Kevin K., 2014. "Why do oil importers diversify their import sources politically? : evidence from U.S. firm-level data," IDE Discussion Papers 458, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper458
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    File URL: https://ir.ide.go.jp/?action=repository_action_common_download&item_id=37717&item_no=1&attribute_id=22&file_no=1
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    References listed on IDEAS

    as
    1. Sergey Mityakov & Heiwai Tang & Kevin K. Tsui, 2013. "International Politics and Import Diversification," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 1091-1121.
    2. Sergei Guriev & Anton Kolotilin & Konstantin Sonin, 2011. "Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data," Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(2), pages 301-323.
    3. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    4. Christopher Hajzler, 2012. "Expropriation of foreign direct investments: sectoral patterns from 1993 to 2006," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 119-149, April.
    5. Axel Dreher & Jan-Egbert Sturm, 2012. "Do the IMF and the World Bank influence voting in the UN General Assembly?," Public Choice, Springer, vol. 151(1), pages 363-397, April.
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    Cited by:

    1. Kashcheeva, Mila & Tsui, Kevin K., 2014. "The effects of international politics on oil-exporting developing countries," IDE Discussion Papers 459, Institute of Developing Economies, Japan External Trade Organization(JETRO).

    More about this item

    Keywords

    United States; International trade; International relatiolns; Petroleum industry; Imports; Foreign investments; Energy resources; International politics; FDI-based imports; Hold-up risk; Energy security;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts

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