Abstract
In this article, we study nationalizations in the oil industry around the world during 1960--2006. We show, both theoretically and empirically, that governments are more likely to nationalize when oil prices are high and when political institutions are weak. We consider a simple dynamic model of the interaction between a government and a foreign-owned oil company. Even though nationalization is inefficient, it does occur in equilibrium when oil prices are high. The model's predictions are consistent with the analysis of panel data on nationalizations in the oil industry around the world since 1960. Nationalization is more likely to happen when oil prices are high and the quality of institutions is low, even controlling for country fixed effects. The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.
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