Profit Sharing between Governments and Multinationals in Natural Resource Extraction: Evidence from a Firm-Level Panel

29 Pages Posted: 24 Aug 2007 Last revised: 6 Jun 2022

See all articles by Andrew Waxman

Andrew Waxman

World Bank

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Date Written: August 2007

Abstract

The "fairness" of negotiations between countries and resource extracting firms is subject to many accusations and counter-accusations and may be argued, in many instances, to impact the subsequent economic benefit to a host country from extraction. This paper examines the role of host country governance on the share of government take from extraction revenue. We attempt to disentangle a number of competing hypotheses regarding the relationship between governance and government take using panel data for US resource extracting multinational corporations (MNCs) operating abroad from the Bureau of Economic Analysis of the US Department of Commerce over 1982-1999. Using fixed effects regression, we find a statistically significant positive impact of institutional quality on government take. The nature of this relationship -- whether this represents the result of a "corruption premium" paid by US MNCs or the exploitation of poor governance in negotiating government take -- is not completely clear. The evidence presented does, however, indicate that potential forms of bargaining power other than institutional quality (e.g., outside options to the deal) do increase government take, indicating that bargaining power may nonetheless be an important factor.

Suggested Citation

Waxman, Andrew and McMillan, Margaret, Profit Sharing between Governments and Multinationals in Natural Resource Extraction: Evidence from a Firm-Level Panel (August 2007). NBER Working Paper No. w13332, Available at SSRN: https://ssrn.com/abstract=1008824

Andrew Waxman

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Margaret McMillan (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
50
Abstract Views
710
PlumX Metrics