The effects of international politics on oil-exporting developing countries

Mila Kashcheeva and Kevin Tsui ()

No 459, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: International politics affects oil trade. But does it affect the oil-exporting developing countries more? We construct a firm-level dataset for all U.S. oil-importing companies over 1986-2008 to examine how these firms respond to changes in "political distance" between the U.S. and her trading partners, measured by divergence in their UN General Assembly voting patterns. Consistent with previous macro evidence, we first show that individual firms diversify their oil imports politically, even after controlling for unobserved firm heterogeneity. We conjecture that the political pattern of oil imports from these individual firms is driven by hold-up risks, because oil trade is often associated with backward vertical FDI. To the extent that developing countries have higher hold-up risks because of their weaker institutions, the political effect on oil trade should be more significant in the developing world. We find that oil import decisions are indeed more elastic when firms import from developing countries, although the reverse is true in the short run. Our results suggest that international politics can affect oil revenue and hence long-term development in the developing world.

Keywords: Developing countries; United States; International trade; Exports; Petroleum industry; International relations; Foreign investments; Energy resources; International politics; FDI-based imports; Hold-up risk; Energy security (search for similar items in EconPapers)
JEL-codes: F13 F51 F59 Q34 (search for similar items in EconPapers)
Date: 2014-03-01
New Economics Papers: this item is included in nep-bec, nep-ene, nep-int and nep-pol
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 459. 2014-03-01

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