Oil Discoveries and Protectionism: Role of News Effects

Tinbergen Institute Discussion Paper 2021-047/VIII

40 Pages Posted: 28 May 2021

See all articles by Fidel Perez-Sebastian

Fidel Perez-Sebastian

Universidad de Alicante - Faculty of Economic and Business Sciences

Ohad Raveh

Hebrew University of Jerusalem

Rick van der Ploeg

University of Oxford - Department of Economics

Date Written: August 24, 2020

Abstract

Can oil discovery shocks affect the demand for protectionism? An intertemporal model of Dutch disease indicates that if the tradable sector is politically dominant then an oil discovery can induce 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 16.2 million, HS-6 level, bilateral tariff rates that cover 5,718 products in 155 countries over the period 1988-2012, and data on worldwide discoveries of giant oil and gas fields. Our identification strategy rests on the exogeneity of the timing of discoveries. Our empirical results indicate that an oil discovery increases tariffs during pre-production years and decreases tariffs 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 13% in the average tariff over the course of 10 years; this increase is approximately 2.5 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 der Ploeg, Rick van, Oil Discoveries and Protectionism: Role of News Effects (August 24, 2020). Tinbergen Institute Discussion Paper 2021-047/VIII, Available at SSRN: https://ssrn.com/abstract=3851912 or http://dx.doi.org/10.2139/ssrn.3851912

Fidel Perez-Sebastian (Contact Author)

Universidad de Alicante - Faculty of Economic and Business Sciences ( email )

Germán Edifcio Bernácer - Ground floor
Campus of San Vicente del Raspeig
Alicante, 03080
Spain

Ohad Raveh

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, 91905
Israel

Rick van Der Ploeg

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

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