Working Paper: CEPR ID: DP6547
Authors: Artyom Durnev; Sergei Guriev
Abstract: We propose and investigate a new channel through which the resource curse - a stylized fact that countries rich in natural resources grow slower - operates. Predatory governments are more likely to expropriate corporate profits in natural-resource industries when the price of resources is higher. Corporations whose profits are more dependent on the price of resources can mitigate the risk of expropriation by reducing corporate transparency. Lower transparency, in turn, leads to inefficient capital allocation and slower economic growth. Using a panel of 72 industries from 51 countries over 16 years, we demonstrate that the negative effect of expropriation risk on corporate transparency is stronger for industries that are especially vulnerable to expropriation, in particular, for industries whose profits are highly correlated with oil prices. Controlling for country, year, and industry fixed effects, we find that corporate transparency is lower in more oil price-dependent industries when the price of oil is high and property rights are poorly protected. Furthermore, corporate growth is hampered in oil price-sensitive industries because of less efficient capital allocation driven by adverse effects of lower transparency.
Keywords: autocracy; expropriation; industry growth; investment efficiency; oil reserves; property rights; resource curse; transparency; disclosure
JEL Codes: G15; G18; K42; L7; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high expropriation risk (H13) | reduced corporate transparency (G38) |
| reduced corporate transparency (G38) | inefficient capital allocation (D61) |
| inefficient capital allocation (D61) | slower economic growth (F69) |
| poorly protected property rights (P14) | lower corporate transparency in oil price-dependent industries (L71) |
| lower corporate transparency (G38) | negative impact on corporate growth (F69) |
| oil price sensitivity and government predation (Q38) | lower transparency (D73) |