Institutions and the Location of Oil Exploration

James Cust and Torfinn Harding

No 127, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: We provide evidence that institutions strongly influence where oil and gas exploration takes place. To identify the effect of institutions, we utilise a global dataset on the location of exploration wells and national borders. This allows for a regression discontinuity design, with the key assumption that the position of borders was determined independently of geology. To break potential simultaneity between borders, institutions and activities in the oil sector, we exploit the historical sequence of drilling occurring after the formation of borders and institutions. At borders, exploration companies choose to drill on the side with better institutional quality 58% of the time. The results are consistent with the view that institutions shape exploration companies’ incentives to invest in drilling as well as host countries’ supply of drilling opportunities. It follows that the observed distribution of natural capital across countries is endogenous with respect to institutions.

Keywords: institutions; investment; oil and gas exploration; regression discontinuity design (search for similar items in EconPapers)
JEL-codes: F21 O13 O43 Q32 (search for similar items in EconPapers)
Date: 2013-11-28
New Economics Papers: this item is included in nep-ene and nep-geo
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Citations: View citations in EconPapers (24)

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Journal Article: Institutions and the Location of Oil Exploration (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:127

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