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Privatization and Nationalization Cycles

  • Roberto Chang
  • Constantino Hevia
  • Norman Loayza

This paper studies the cycles of nationalization and privatization in resource-rich economies. We discuss available evidence on the drivers and consequences of privatization and nationalization, review the existing literature, and present illustrative case studies. Our main contribution is then to develop a static and dynamic model of the choice between private and national regimes for the ownership of natural resources. In the model, this choice is driven by a basic equality-efficiency tradeoff: national ownership results in more redistribution of income and more equality, but undermines incentives for effort. The resolution of the tradeoff depends on external and domestic conditions that affect the value of social welfare under each regime. This allows us to characterize how external variables -- such as the commodity price -- and domestic ones -- such as the tax system -- affect the choice of private vs. national regimes. The analysis therefore identifies the determinants of the observed cycles of privatization and nationalization, and is consistent with a variety of observed phenomena.

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File URL: http://www.nber.org/papers/w16126.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16126.

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Date of creation: Jun 2010
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Handle: RePEc:nbr:nberwo:16126
Note: IFM
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  1. Duncan, Roderick, 2006. "Price or politics? An investigation of the causes of expropriation," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), March.
  2. Michael S Minor, 1994. "The Demise of Expropriation as an Instrument of LDC Policy 1980-1992," Journal of International Business Studies, Palgrave Macmillan, vol. 25(1), pages 177-188, March.
  3. Bohn, Henning & Deacon, Robert, 1997. "Ownership Risk, Investment, and the Use of Natural Resources," Discussion Papers dp-97-20, Resources For the Future.
  4. Nemat Shafik, 1996. "Selling Privatization Politically," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(3), pages 367-378.
  5. James A. Schmitz, Jr. & Arilton Teixeira, 2004. "Privatization's impact on private productivity: the case of Brazilian iron ore," Staff Report 337, Federal Reserve Bank of Minneapolis.
  6. Roderick Duncan, 2006. "Price or politics? An investigation of the causes of expropriation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(1), pages 85-101, 03.
  7. Guriev, Sergei & Kolotilin, Anton & Sonin, Konstantin, 2008. "Determinants of Expropriation in the Oil Sector: A Theory and Evidence from Panel Data," CEPR Discussion Papers 6755, C.E.P.R. Discussion Papers.
  8. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
  9. Shafer, Michael, 1983. "Capturing the mineral multinationals: advantage or disadvantage?," International Organization, Cambridge University Press, vol. 37(01), pages 93-119, December.
  10. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, 04.
  11. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
  12. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2005. "Liberalization, corporate governance and the performance of privatized firms in developing countries," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 767-790, October.
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