The Resource Curse: A Corporate Transparency Channel

Art Durnev () and Sergei Guriev
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Art Durnev: Desautels Faculty of Management, McGill University

No w0108, Working Papers from New Economic School (NES)

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: Resource Curse; Oil Reserves; Expropriation; Autocracy; Transparency and Disclosure; Investment Efficiency; Industry Growth (search for similar items in EconPapers)
JEL-codes: G15 G18 G38 K42 L7 O43 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2007-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Resource Curse: A Corporate Transparency Channel (2011)
Working Paper: The Resource Curse: A Corporate Transparency Channel (2007)
Working Paper: The Resource Curse: A Corporate Transparency Channel (2007)
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