Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data
Sergei M. Guriev
Sciences Po; Centre for Economic Policy Research (CEPR)
University of New South Wales (UNSW)
University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; Higher School of Economics; Centre for Economic Policy Research (CEPR)
February 1, 2008
Journal of Law, Economics, and Organization, 27 (2): 301-323, 2011.
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.
Number of Pages in PDF File: 28
Keywords: oil, nationalization, property rights protection
JEL Classification: D23, L33, L71, P48
Date posted: March 7, 2008 ; Last revised: October 22, 2012