The Local Advantage: Corruption, Organized Crime, and Indigenization in the Nigerian Oil Sector

117 Pages Posted: 6 Sep 2021

See all articles by Jonah Rexer

Jonah Rexer

University of Pennsylvania - The Wharton School

Date Written: April 12, 2021

Abstract

Despite productivity advantages, multinational firms may operate less effectively than their local competitors in markets plagued by corruption and conflict. In natural resource sectors where firms face predation by armed groups, local firms may more easily engage in efficient corruption to buy law enforcement protection for their assets. I study a two-decade indigenization drive in Nigeria's turbulent oil sector, during which the share of local ownership grew substantially. Local takeover considerably increases oilfield output and reduces the share of nonproducing assets, despite evidence that local firms are of lower quality. Local firms increase output by reducing black-market activity: oil theft, maritime piracy, and militant violence all fall following local takeover. A simple bargaining model illustrates that political connections enable local firms to align law enforcement incentives, explaining their superior output performance. Data on anti-oil theft raids by government forces show that local firms receive preferential law enforcement protection. I find evidence that connections to high-level politicians and the security forces drive local firms' advantage in obtaining state protection and reducing criminal activity.

Keywords: foreign investment, hydrocarbons, political risk, organized crime, black markets, conflict, law enforcement, corruption

JEL Classification: F2, L24, Q34, Q35

Suggested Citation

Rexer, Jonah, The Local Advantage: Corruption, Organized Crime, and Indigenization in the Nigerian Oil Sector (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3894597 or http://dx.doi.org/10.2139/ssrn.3894597

Jonah Rexer (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
4
Abstract Views
138
PlumX Metrics