Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data

Journal of Law, Economics, and Organization, 27 (2): 301-323, 2011.

28 Pages Posted: 7 Mar 2008 Last revised: 22 Oct 2012

See all articles by Sergei M. Guriev

Sergei M. Guriev

Sciences Po; Centre for Economic Policy Research (CEPR); European Bank for Reconstruction and Development (EBRD)

Anton Kolotilin

University of New South Wales (UNSW)

Konstantin Sonin

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Date Written: February 1, 2008

Abstract

In this paper we study nationalizations in the oil industry around the world in 1960-2002. We show, both theoretically and empirically, that governments are more likely to nationalize when oil prices are high and when political institutions are weak. We consider a simple dynamic model of the interaction between a government and a foreign oil company. The government cannot commit to abstain from expropriation and the company cannot commit to pay high taxes. Even though nationalization is inefficient it does occur in equilibrium when oil prices are high. The model's predictions are consistent with the panel analysis of a comprehensive dataset on nationalizations in the oil industry since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low even when controlling for country fixed effects.

Keywords: oil, nationalization, property rights protection

JEL Classification: D23, L33, L71, P48

Suggested Citation

Guriev, Sergei M. and Kolotilin, Anton and Sonin, Konstantin, Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data (February 1, 2008). Journal of Law, Economics, and Organization, 27 (2): 301-323, 2011.. Available at SSRN: https://ssrn.com/abstract=1103019

Sergei M. Guriev

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

Anton Kolotilin

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Konstantin Sonin (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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