Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-28T18:59:11.310Z Has data issue: false hasContentIssue false
  • English
  • Français

PRODUCTIVITY, NATIONALIZATION, AND THE ROLE OF “NEWS”: LESSONS FROM THE 1970S

Published online by Cambridge University Press:  27 November 2018

Nida Çakir Melek
Nida Çakir Melek*
Affiliation:
Federal Reserve Bank of Kansas City
*
Address correspondence to: Nida Çakır Melek, Federal Reserve Bank of Kansas City, 1 Memorial Drive, Kansas City, MO 64198, USA; e-mail: [email protected]. Phone: (816) 283-7759. Fax. (816) 881-2807.
Get access Rights & Permissions [Opens in a new window]

Abstract

Occurrences of an old phenomenon, the expropriation of foreign-owned property, peaked in the 1970s when virtually every significant oil-producing developing country nationalized its oil. Nationalization was again on the rise in the 2000s. Using novel data, this paper quantitatively evaluates the effects of nationalization. First, the paper finds significant productivity losses associated with nationalization in a sample of oil-producing countries. Venezuela in particular experienced a striking decline in productivity. Second, the paper presents a new channel through which nationalization affects productivity: a long-term pre-announcement can shift the composition of the workforce with a huge decline in highly skilled foreign workers and result in higher extraction and lower exploration. Guided by a quantitative dynamic partial equilibrium framework disciplined by features of the Venezuelan data, this paper then evaluates the effects of nationalization. A comparison of the simulated and time series data shows that the model can explain about 80% of the productivity pattern over 1961–1980 in the Venezuelan oil industry. Counterfactual experiments suggest that the shift in the composition of the workforce is important in accounting for the productivity pattern. Furthermore, if nationalization had been sudden, long-run losses would have been lower.

Keywords

ProductivityNationalizationOilNews (Policy Foresight)Foreign Expertise
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 5 , July 2020 , pp. 1264 - 1298
Copyright
© Cambridge University Press 2018

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I am grateful to Lee E. Ohanian for his invaluable guidance and support, and to Paco Buera, Satyajit Chatterjee, Roger E. A. Farmer, Aaron Tornell, and Mark L. J. Wright for insightful discussions and comments. I thank the editor William Barnett, an associate editor, an anonymous referee, Jess Benhabib, Burcu Eyigungor, Gonzalo Llosa, Gonca Senel, Shi Wei, Pierre-Olivier Weill, Chad Wilkerson, all the seminar and conference participants at UCLA, OxCarre, Federal Reserve Bank of Kansas City, Missouri Economics Conference, Midwest Macro Meeting, North American Productivity Workshop, and SCE CEF for their helpful comments, and Elizabeth Cook for editorial help. The views expressed herein are my own and do not necessarily reflect those of anyone else affiliated with the Federal Reserve System. An earlier version of this paper circulated under the title “Productivity and Nationalization: Early Evidence and A Macroeconomic Analysis.”

References

Aitken, Brian J. and Harrison, Ann E. (1999) Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review 89(3), 605–618.CrossRefGoogle Scholar
American Petroleum Institute (1975) Basic Petroleum Data Book: Petroleum Industry Statistics. Washington, D.C.Google Scholar
Antill, Nick and Arnott, Robert (2000) Valuing Oil and Gas Companies: A Guide to the Assessment and Evaluation of Assets, Performance and Prospects. Cambridge, England: Woodhead Publishing Limited.Google Scholar
Antras, Pol, Garicano, Luis and Rossi-Hansberg, Esteban (2006) Offshoring in a knowledge economy. Quarterly Journal of Economics 121(1), 31–77.CrossRefGoogle Scholar
Arezki, Rabah, Ramey, Valerie A. and Sheng, Liugang (2017) News shocks in open economies: Evidence from giant oil discoveries. The Quarterly Journal of Economics 132(1), 103–155.CrossRefGoogle Scholar
Asiedu, Elizabeth and Villamil, Anne P. (2000) Discount factors and thresholds: Foreign investment when enforcement is imperfect. Macroeconomic Dynamics 4(1), 1–21.CrossRefGoogle Scholar
Barrett, Scott A. (1986) The economics of oil supply dynamics: Theory and practice. Energy Economics 8(4), 237–250.CrossRefGoogle Scholar
Barro, Robert J. and Lee, Jong Wha (2013) A new data set of educational attainment in the world, 1950-2010. Journal of Development Economics 104, 184–198.CrossRefGoogle Scholar
Bello, Omar D., Blyde, Juan S. and Restuccia, Diego (2011) Venezuela’s growth experience. Latin American Journal of Economics 48(2), 199–226.Google Scholar
Blackorby, Charles and Robert Russell, R. (1989) Will the real elasticity of substitution please stand up? (A comparison of the Allen/Uzawa and Morishima Elasticities). American Economic Review 79(4), 882–888.Google Scholar
Brixiova, Zuzana and Egert, Balazs (2012) Business environment, start-ups, and productivity during transition. Macroeconomic Dynamics 16(S2), 213–231.CrossRefGoogle Scholar
Brogini, Maurice (1973) L’exploitation des Hydrocarbures en Algerie de 1956 a 1971: etude de geographie economique. Nice, France: Universite de Nice.Google Scholar
Burstein, Ariel T. and Monge-Naranjo, Alexander (2009) Foreign know-how, firm control, and the income of developing countries. Quarterly Journal of Economics 124(1), 149–195.CrossRefGoogle Scholar
Bye, Vegard (1979) Nationalization of oil in Venezuela: Re-defined dependence and legitimization of imperialism. Journal of Peace Research 16(1), 57–78.CrossRefGoogle Scholar
Chang, Roberto, Hevia, Constantino and Loayza, Norman (2018) Privatization and nationalization cycles. Macroeconomic Dynamics 22(2), 331–361.CrossRefGoogle Scholar
Chase Manhattan Bank, Energy Division (1968–1982) Capital Investments of the World Petroleum Industry. New York: Chase Manhattan Bank.Google Scholar
Cole, Harold L., Ohanian, Lee E., Riascos, Alvaro and Schmitz, James A. (2005) Latin America in the rearview mirror. Journal of Monetary Economics 52(1), 69–107.CrossRefGoogle Scholar
Coronel, Gustavo (1983) The Nationalization of the Venezuelan Oil Industry. Lanham, MD: Lexington Books.Google Scholar
Cuddington, John T. and Moss, Diana L. (2001) Technological change, depletion, and the U.S. Petroleum Industry. American Economic Review 91(4), 1135–1148.CrossRefGoogle Scholar
Dasgupta, Partha and Heal, Geoffrey (1974) The optimal depletion of exhaustible resources. The Review of Economic Studies 41, 3–28.CrossRefGoogle Scholar
Deacon, Robert T. (1993) Taxation, depletion, and welfare: A simulation study of the U.S. Petroleum Resource. Journal of Environmental Economics and Management 24(2), 159–187.CrossRefGoogle Scholar
Devarajan, Shantayanan and Fisher, Anthony C. (1982) Exploration and scarcity. Journal of Political Economy 90(6), 1279–1290.CrossRefGoogle Scholar
Duncan, Roderick (2006) Price or politics? An investigation of the causes of expropriation. Australian Journal of Agricultural and Resource Economics 50(1), 85–101.CrossRefGoogle Scholar
Eeckhout, Jan and Jovanovic, Boyan (2012) Occupational Choice and Development. Journal of Economic Theory 147(2), 657–683.CrossRefGoogle Scholar
Ellner, Steve (1993) Organized Labor in Venezuela 1958–1991: Behavior and Concerns in a Democratic Setting. Wilmington, DE: Scholarly Resources Books.Google Scholar
Energy Information Administration. Definitions, Sources, and Explanatory Notes. Washington, DC: U.S. Department of Energy.Google Scholar
Farzin, Y. Hossein (2001) The impact of oil price on additions to US proven reserves. Resource and Energy Economics 23(3), 271–292.CrossRefGoogle Scholar
Gall, Norman (1975) The challenge of Venezuelan oil. Foreign Policy 18(Spring), 44–67.CrossRefGoogle Scholar
Gately, Dermot, Adelman, M. A. and Griffin, James M. (1986) Lessons from the 1986 oil price collapse. Brookings Papers on Economic Activity 1986(2), 237–284.CrossRefGoogle Scholar
Guriev, Sergei, Kolotilin, Anton and Sonin, Konstantin (2011) Determinants of nationalization in the oil sector: A theory and evidence from panel data. The Journal of Law, Economics, and Organization 27(2), 301–323.CrossRefGoogle Scholar
Hajzler, Christopher (2007) Expropriation of Foreign Direct Investments, 1990–2006. University of Western Ontario, Working Paper.Google Scholar
Hajzler, Christopher (2012) Expropriation of foreign direct investments: Sectoral patterns from 1993 to 2006. Review of World Economics 148(1), 119–149.CrossRefGoogle Scholar
Hajzler, Christopher (2014) Resource-based FDI and expropriation in developing economies. Journal of International Economics 92(1), 124–146.CrossRefGoogle Scholar
Hausmann, Ricardo and Rodriguez, Francisco (2006) Venezuela: Anatomy of a Collapse.Google Scholar
Hotelling, Harold (1931) The economics of exhaustible resources. Journal of Political Economy 39(2), 137–175.CrossRefGoogle Scholar
Howarth, Stephen and Jonker, Joost (2007) Powering the Hydro-Carbon Revolution, 1939-1973, A History of Royal Dutch Shell, Volume 2. New York: Oxford University Press.Google Scholar
International Labour Organization, Sectoral Activities (1998) Employment and Industrial Relations Issues in Oil Refining. Geneva: International Labour Office.Google Scholar
Kobrin, Stephen J. (1980) Foreign enterprise and forced divestment in LDCs. International Organization 34(1), 65–88.CrossRefGoogle Scholar
Kobrin, Stephen J. (1984) Expropriation as an attempt to control foreign firms in LDCs: Trends from 1960 to 1979. International Studies Quarterly 28(3), 329–348.CrossRefGoogle Scholar
Kobrin, Stephen J. (1984) The nationalization of oil production, 1918–80. In: Pearce, David W., Siebert, Horst and Walter, Ingo (eds.), Risk and the Political Economy of Resource Development, pp. 137–164. London: Palgrave Macmillan.CrossRefGoogle Scholar
Krusell, Per, Ohanian, Lee E., Rios-Rull, Jose-Victor, and Violante, Giovanni L. (2000) Capital-skill complementarity and inequality: Macroeconomic analysis. Econometrica 68(5), 1029–1053.CrossRefGoogle Scholar
La Porta, Rafael and Lopez-de-Silanes, Florencio (1999) The benefits of privatization: Evidence from Mexico. The Quarterly Journal of Economics 114(4), 1193–1242.CrossRefGoogle Scholar
Lim, King Yoong (in press) Industrial transformation with heterogeneous labor and foreign experts. Macroeconomic Dynamics.Google Scholar
Luciani, Giacomo (1984) The Oil Companies and the Arab World. New York: St. Martin’s Press.Google Scholar
Mackay, K. H. (1984) Estimates of manpower requirements and manpower availability in the world petroleum industry 1980–2000 and their implications. In: Proceedings of the 11th World Petroleum Congress, pp. 3–11. John Wiley and Sons, Chichester.Google Scholar
Manzano, Osmel and Monaldi, Francisco (2010) The Political Economy of Oil Contract Renegotiation in Venezuela, in The Natural Resource Trap: Private Investment without Public Commitment. Cambridge, MA: MIT Press.Google Scholar
Martinez, Anibal R. (1989) Venezuelan Oil Development and Chronology. New York: Springer.Google Scholar
Megginson, William L., Nash, Robert C. and Van-Randenborgh, Matthias (1994) The financial and operating performance of newly privatized firms: An international empirical analysis. The Journal of Finance 49(2), 403–452.CrossRefGoogle Scholar
Megginson, William L. and Netter, Jeffry M. (2002) From state to market: A survey of empirical studies on privatization. Journal of Economic Literature 39(2), 321–389.CrossRefGoogle Scholar
Michelena, Silva, Agustin, Jose and Soublette, Felix (1976) Nacionalizacion Petrolera: Recursos Humanos. Caracas, Venezuela: Universidad Central de Venezuela.Google Scholar
Mikesell, Raymond F. (1984) Petroleum Company Operations and Agreements in the Developing Countries. Washington, D.C.: Resources for the Future.Google Scholar
Minor, Michael S. (1994) The demise of expropriation as an instrument of LDC policy, 1980-1992. Journal of International Business Studies 25(1), 177–188.CrossRefGoogle Scholar
Monge-Naranjo, Alexander (2010) Foreign firms and the diffusion of entrepreneurial skills. State College, PA: Penn State University.Google Scholar
Olmedillo, N. E. (1984) Human resources procurement and development in a growing industry, Caracas, Venezuela. In: Proceedings of the 11th World Petroleum Congress, pp. 21–29. John Wiley and Sons, Chichester.Google Scholar
Pindyck, Robert S. (1978) The optimal exploration and production of nonrenewable resources. Journal of Political Economy 86(5), 841–861.CrossRefGoogle Scholar
Randall, Laura (1989) Mexico’s Oil Workers: Union Gains and Labor Conditions. The Graduate School and University Center of the City University of New York, Bildner Center for Western Hemisphere Studies, Working Paper Series: U.S.-Mexico Studies. No: 6.Google Scholar
Rigobon, Roberto (2010) Dealing with expropriations: General guidelines for oil production contracts. In: Hogan, William and Sturzenegger, Federico (eds.), The Natural Resources Trap: Private Investment without Public Commitment, pp. 227–254. Cambridge, MA: MIT Press.CrossRefGoogle Scholar
Sachs, Jeffrey D. and Warner, Andrew M. (1999) Natural resource intensity and economic growth. In: Mayer, Jorg, Chambers, Brian and Farooq, Ayisha (eds.), Development Policies in Natural Resource Economies, pp. 13–37. Cheltenham, U.K. and Northampton, MA: Elgar in association with UNCTAD.Google Scholar
Schmitz, James A. Jr. (2005) What determines productivity? Lessons from the dramatic recovery of the U.S. and Canadian Iron Ore Industries following their early 1980s crisis. Journal of Political Economy 113(3), 582–625.CrossRefGoogle Scholar
Schmitz, James A. Jr. and Teixeira, Arilton (2008) Privatization’s impact on private productivity: The case of Brazilian Iron Ore. Review of Economic Dynamics 11(4), 745–760.CrossRefGoogle Scholar
Stroebel, Johannes and Benthem, Arthur Van (2013) Resource extraction contracts under threat of expropriation: Theory and evidence. Review of Economics and Statistics 95(5), 1622–1639.CrossRefGoogle Scholar
Tennassee, Paul Nehru (1979) Venezuela, Los Obreros Petroleros y la lucha por la democracia. Fremont, CA: E.F.I. Publicaciones.Google Scholar
Tomz, Michael and Wright, Mark L. J. (2010) Sovereign theft: Theory and evidence about sovereign default and expropriation. In: Hogan, William and Sturzenegger, Federico (eds.), The Natural Resources Trap: Private Investment without Public Commitment. Cambridge, MA: MIT Press.Google Scholar
U.S. Bureau of the Census, U.S. Census of Mineral Industries (1958) Summary and Industry Statistics, Volume 1. Washington, DC: U.S. Bureau of the Census.Google Scholar
U.S. Bureau of the Census, U.S. Census of Mineral Industries (1987) Industry Series, Oil and Gas Field Services. Issued August 1989.Google Scholar
Williams, M. L. (1975) The extent and significance of the nationalization of foreign-owned assets in developing countries, 1956-1972. Oxford Economic Papers 27(2), 260–273.CrossRefGoogle Scholar
Woodward, Peter N. (1988) Oil and Labor in the Middle East: Saudi Arabia and the Oil Boom. Santa Barbara, CA: Praeger Publishers.Google Scholar
Yergin, Daniel (1991) The Prize: The Epic Quest for Oil, Money & Power. New York: Simon & Schuster.Google Scholar
Yucel, Mine Kuban (1986) Dynamic Analysis of Severance Taxation in a Competitive Exhaustible Resource Industry. Resources and Energy 8(3), 201–218.CrossRefGoogle Scholar
Supplementary material: PDF

Çakir Melek supplementary material

Appendices

Download Çakir Melek supplementary material(PDF)
PDF 270.7 KB