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Journal of Law, Economics, and Organization Advance Access published online on June 23, 2009
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewp011
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© The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data

Sergei Guriev*

New Economic School

Anton Kolotilin**

Massachusetts Institute of Technology

Konstantin Sonin***

New Economic School

* Morgan Stanley Professor of Economics, New Economic School, Moscow, Russia. Email: sguriev{at}nes.ru.

** Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA. Email: akol{at}mit.edu.

*** SUEK Professor of Economics, New Economic School, Moscow, Russia. Email: ksonin{at}nes.ru.

In this article, we study nationalizations in the oil industry around the world during 1960–2006. 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-owned oil company. Even though nationalization is inefficient, it does occur in equilibrium when oil prices are high. The model's predictions are consistent with the analysis of panel data on nationalizations in the oil industry around the world since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low, even controlling for country fixed effects. (JEL D23, L33, L71, P48)

This work has originated from Kolotilin's thesis at the New Economic School and was supported by the New Economic School's Research Center. We are grateful to Stephen Kobrin for providing us with data on nationalizations. We thank the editor Luis Garicano and two anonymous referees, as well as Victor Chernozhukov, Art Durnev, Georgy Egorov, Robert Gibbons, Craig Pirrong, Ekaterina Zhuravskaya, and participants at the Massachusetts Institute of Technology Organizational Economics lunch and conferences in Beijing and Moscow for helpful comments.


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