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International partnerships, foreign control and income levels : theory and evidence

  • Christa N. Brunnschweiler

    ()

    (Department of Economics, Norwegian University of Science and Technology)

  • Simone Valente

    (Department of Economics, Norwegian University of Science and Technology)

We analyze the effects of different regimes of control rights over critical resources on the total domestic income of open economies. Considering home control, foreign control, and international partnerships in a theoretical model with incomplete contracts and more productive foreign technologies, we show that (i) partnerships can be jointly optimal, (ii) foreign control is never optimal, (iii) assigning complete residual rights to foreign firms reduces domestic income via a Dutch-Disease mechanism. Empirical evidence using a new dataset on petroleum ownership structures for up to 68 countries between 1867-2008 shows that (i) international partnerships tend to generate higher domestic income than foreign control, and (ii) partnership and foreign control are linked to high or intermediate relative profitability of the domestic resource endowment, whereas home control is associated with low relative profitability.

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Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 13412.

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Length: 44 pages
Date of creation: 17 Aug 2012
Date of revision:
Handle: RePEc:nst:samfok:13412
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Web page: http://www.svt.ntnu.no/iso/WP/wp.htm
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