The Resource Curse: A Corporate Transparency Channel

66 Pages Posted: 6 Jun 2008

See all articles by Art Durnev

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Sergei Guriev

Sciences Po; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2007

Abstract

We propose and investigate a new channel through which the resource curse - a stylized fact that countries rich in natural resources grow slower - operates. Predatory governments are more likely to expropriate corporate profits in natural-resource industries when the price of resources is higher. Corporations whose profits are more dependent on the price of resources can mitigate the risk of expropriation by reducing corporate transparency. Lower transparency, in turn, leads to inefficient capital allocation and slower economic growth. Using a panel of 72 industries from 51 countries over 16 years, we demonstrate that the negative effect of expropriation risk on corporate transparency is stronger for industries that are especially vulnerable to expropriation, in particular, for industries whose profits are highly correlated with oil prices. Controlling for country, year, and industry fixed effects, we find that corporate transparency is lower in more oil price-dependent industries when the price of oil is high and property rights are poorly protected. Furthermore, corporate growth is hampered in oil price-sensitive industries because of less efficient capital allocation driven by adverse effects of lower transparency.

Keywords: Autocracy, Expropriation, Industry Growth, Investment Efficiency, Oil Reserves, Property rights, Resource Curse, Transparency and Disclosure

JEL Classification: G15, G18, K42, L7, O43

Suggested Citation

Durnev, Artyom and Guriev, Sergei, The Resource Curse: A Corporate Transparency Channel (October 2007). CEPR Discussion Paper No. DP6547. Available at SSRN: https://ssrn.com/abstract=1140074

Artyom Durnev

University of Iowa - Henry B. Tippie College of Business ( email )

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Sergei Guriev (Contact Author)

Sciences Po ( email )

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Paris Cedex 07, 75337
France

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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