Thresholds in natural resource rents and state owned enterprise profitability: Cross country evidence

Abstract

In this paper we contribute to the resource curse literature by examining the association between state owned enterprises (SOE) profitability and natural resource rents. We use data on 91,094 firms across 36 industries in 101 countries to show that although SOEs are inherently less productive compared to privately owned enterprises (POEs), there exists a threshold value of natural resource rents windfall above which SOEs would outperform POEs profitability. This threshold value of natural resource windfall we find to be between 138.6% and 192.3% above the long-term median value of resource rents. We argue that this threshold may exist because of: (i) at the country level, higher level of natural resource rents allocation that is reinvested domestically in the form of SOE capital investments; and (ii) at the industry level, SOEs experience higher scale economies through production linkages to the natural resource sector.