Oil Discoveries and Protectionism

36 Pages Posted: 24 May 2019 Last revised: 7 Oct 2019

See all articles by Fidel Perez‐Sebastian

Fidel Perez‐Sebastian

Universidad de Alicante - Department of Economic Analysis

Ohad Raveh

Hebrew University of Jerusalem

Rick van der Ploeg

University of Oxford

Date Written: September 1, 2019

Abstract

Can oil discovery shocks affect the demand for protectionism? A two-period model of Dutch disease indicates that if the tradable sector is politically dominant then an oil discovery induces protectionism. If the economy is also credit constrained, this effect is intensified upon discovery, but partially reversed when oil revenues start to flow. We test these predictions using detailed bilateral tariff data that covers 96 products in 155 countries over the period 1988-2012, and worldwide discoveries of giant oil and gas fields. Our identification strategy rests on the plausible exogeneity of the timing of discoveries. We find that an oil discovery increases tariffs during pre-production years and decreases them in the years to follow yet to a lesser extent, most notably in capital scarce economies with a relatively dominant tradable sector. Our baseline estimates indicate that a giant oil field discovery induces a rise of approximately 15% in the average tariff over the course of 10 years; this increase is about 1.8 times larger during the pre-production period when the oil discovery represents a pure news shock.

Keywords: Oil discoveries, protectionism, capital scarcity, Dutch disease, political economy, trade policy, news shocks

JEL Classification: Q32, F13, O24

Suggested Citation

Perez Sebastian, Fidel and Raveh, Ohad and van der Ploeg, Frederick, Oil Discoveries and Protectionism (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3379050 or http://dx.doi.org/10.2139/ssrn.3379050

Fidel Perez Sebastian

Universidad de Alicante - Department of Economic Analysis ( email )

03080 Alicante
Spain

Ohad Raveh (Contact Author)

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, 91905
Israel

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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