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Institutions and the Location of Oil Exploration


  • James Cust
  • Torfinn Harding


We provide evidence that institutions strongly influence where investors drill for oil and gas. At national borders, investors drill on the side with better institutionalquality two times out of three. To identify the effect of institutions, we utilise a global data set on the location of exploration wells and national borders. This allows for a regression discontinuity design, with the key assumption that the position of borders was determined independently of geology. To break potential simultaneity between borders, institutions and activities in the oil sector, we utilise the historical sequence of drilling occurring after the formation of borders and institutions.Our results are consistent with the view that institutions shape exploration companies’ incentives to invest in drilling as wells as host countries’ supply of drilling opportunities. They imply that the observed distribution of natural capital across countries is endogenous with respect to institutions.

Suggested Citation

  • James Cust & Torfinn Harding, 2014. "Institutions and the Location of Oil Exploration," OxCarre Working Papers 127, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:127

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    Cited by:

    1. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Clark, Jeremy, 2017. "The evolution of the natural resource curse thesis: A critical literature survey," Resources Policy, Elsevier, vol. 51(C), pages 123-134.
    2. Mamo, Nemera & Bhattacharyya, Sambit & Moradi, Alexander, 2019. "Intensive and extensive margins of mining and development: Evidence from Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 139(C), pages 28-49.
    3. Frode Martin Nordvik, 2014. "Does Oil Promote or Prevent Coups?," Working Papers No 7/2014, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    4. James Cust, 2017. "The role of governance and international norms in managing natural resources," WIDER Working Paper Series 203, World Institute for Development Economic Research (UNU-WIDER).
    5. Radoslaw Stefanski & Gerhard Toews, 2018. "What's in a wedge? Misallocation and Taxation in the Oil Industry," Discussion Paper Series, School of Economics and Finance 201804, School of Economics and Finance, University of St Andrews.
    6. Ian A. Lange & Michael Redlinger, 2018. "Effects of Stricter Environmental Regulations on Resource Development," CESifo Working Paper Series 7053, CESifo Group Munich.
    7. Liana O Anderson & Samantha De Martino & Torfinn Harding & Karlygash Kuralbayeva & Andre Lima, 2016. "The Effects of Land Use Regulation on Deforestation: Evidence from the Brazilian Amazon," OxCarre Working Papers 172, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    8. repec:kap:jecgro:v:24:y:2019:i:1:d:10.1007_s10887-018-09161-z is not listed on IDEAS
    9. repec:eee:jeeman:v:92:y:2018:i:c:p:765-782 is not listed on IDEAS
    10. Arezki, Rabah & Toscani, Frederik & van der Ploeg, Frederick, 2016. "Shifting Frontiers in Global Resource Wealth: The Role of Policies and Institutions," CEPR Discussion Papers 11553, C.E.P.R. Discussion Papers.
    11. Tiago Cavalcanti & Daniel Mata & Frederik Toscani, 2019. "Winning the oil lottery: the impact of natural resource extraction on growth," Journal of Economic Growth, Springer, vol. 24(1), pages 79-115, March.
    12. Iacono, Roberto, 2016. "No blessing, no curse? On the benefits of being a resource-rich southern region of Italy," Research in Economics, Elsevier, vol. 70(2), pages 346-359.
    13. repec:ucp:jaerec:doi:10.1086/705547 is not listed on IDEAS
    14. Cust,James Frederick & Mihalyi,David, 2017. "Evidence for a presource curse ? oil discoveries, elevated expectations, and growth disappointments," Policy Research Working Paper Series 8140, The World Bank.
    15. repec:eee:jeeman:v:96:y:2019:i:c:p:60-87 is not listed on IDEAS
    16. James Cust & Torfinn Harding & Pierre-Louis Vezina, 2017. "Dutch Disease Resistance: Evidence from Indonesian Firms," OxCarre Working Papers 192, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    17. Bütikofer, Aline & Dalla-Zuanna, Antonio & Salvanes, Kjell G., 2018. "Breaking the Links: Natural Resource Booms and Intergenerational Mobility," Discussion Paper Series in Economics 19/2018, Norwegian School of Economics, Department of Economics.
    18. repec:kap:jecgro:v:22:y:2017:i:2:d:10.1007_s10887-016-9139-2 is not listed on IDEAS
    19. Lange, Ian & Redlinger, Michael, 2019. "Effects of stricter environmental regulations on resource development," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 60-87.
    20. Mohammad Kemal, 2016. "Ownership Rights versus Access Rights Allocation to Critical Resources: An Empirical Study of the Economic Impact of Changes in Oil Governance," Working Papers 2016-02, Colorado School of Mines, Division of Economics and Business.
    21. Christa N. Brunnschweiler & Steven Poelhekke, 2019. "Pushing One's Luck: Petroleum ownership and discoveries," University of East Anglia School of Economics Working Paper Series 2019-01, School of Economics, University of East Anglia, Norwich, UK..

    More about this item


    institutions; investment; oil and gas exploration; regression discontinuity design;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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