Transparency in Commodity-Rich Countries: Is State Ownership to Blame?

Revisiting the Oil Curse: Does Ownership Matter?

Relevance. Foreign investment is likely to be attracted to resource-rich countries because of their wealth of natural resources. However, the fact that foreign direct investment (FDI) contributes less than 10% of these countries’ GDP indicates that FDI has a non-proportional impact when compared to the size of the natural resources. Hence, it is critical to identify the missing link impeding resource optimization through FDI. Research objective. Given the significance of FDI, the study seeks to ascertain whether the quality of institutions in resource-rich countries influences FDI inflows. This is significant because resource-rich countries may have other factors that encourage FDI but do not result in resource optimization. Data and methods. The study employed panel data analysis to analyze the impact of FDI on economic growth in resource-rich countries and the role of institutions in attracting FDI. The study relies on the Augmented Mean Group Estimator and on the annual data from the World Bank's World Development Indicator and the World Bank's World Governance Indicator for the top ten resource-rich countries. Results. Our preliminary evidence indicated that FDI had a positive and significant effect on economic growth in resource-rich countries. The extent of the influence, on the other hand, is minimal for all categories of countries. Our main results revealed that institutional quality has a significant pull effect on FDI, with trade openness playing a key role, particularly in resource-rich nations with well-developed institutions. Conclusions. We found that institutional quality plays a critical role in attracting FDI, which could have hampered natural resource optimization. Furthermore, countries with high institutional quality and less restrictive investment policies attract more foreign direct investment (FDI) than countries with low institutional quality and with investment policies ranging from moderate to restrictive. In general, resource-rich countries, particularly those with weak institutional qualities, should address the gap in institutional quality to attract more inward investment.

Since the late 1990s, transparency has emerged as a major governance pillar helping resource-rich countries improve their performance and escape the resource curse. Within this debate, a few scholars have pointed to the correlation between ownership structure and transparency, and have argued that under state ownership, transparency should not be expected, as government officials refrain from strengthening institutions to retain their discretionary power.
 
 Full text available at: https://doi.org/10.22215/rera.v12i2.1182

The objective of this research is to provide empirical evidence regarding the nature of the relationship between natural resource rents and economic welfare. Firstly, this relationship is examined in 144 countries from 1996 to 2016; then the relationship is analysed for different groupings of these countries, based on their level of natural resource revenue as a share of total fiscal revenue and in terms of per capita income. Employing fixed-effect regression for panel data, three major auxiliary variables are included in the analysis—institutional quality, foreign direct investment (FDI) and industry value added (IVA). Due to their potential significance for the relationship between natural resource rents and economic welfare, these are analysed as both independent and moderator variables. The study is then extended to focus on one resource-rich country (RRC): Indonesia. Not only is Indonesia endowed with abundant natural resources, but it has also been posited as an example of a country that has overcome the ‘resource curse’—the failure of many RRCs to benefit fully from their natural resource wealth (Hanif & Bria, 2016; Rosser, 2004, 2007). Conversely, some studies claim that the resource curse does exist in Indonesia (see Hanafi & Martawardaya, 2015; Putra & Widodo, 2013). The analysis presented in this thesis comprises a time series regression analysis and a qualitative analysis based on primary data from key informant interviews. The results from the broad sample of countries suggest that, although rents generated from natural resource sectors have contributed positively to economic welfare, as measured by adjusted net saving (ANS), these rents have a conditional link to economic welfare. A focus on RRCs further demonstrates this ambiguous relationship; several models demonstrate no significant association. Following segregation of the RRCs according to per capita income levels, it became evident that a negative association between rents and economic welfare appears to exist in low and lower-middle income RRCs. In upper-middle income RRCs, natural resource rents are likely to have no association; and, in high-income RRCs, they appear to have a positive association with economic welfare. This study also found that IVA and some dimensions of institutional quality have significant positive effects on economic welfare and moderating effects on the relationship between natural resource rents and economic welfare. FDI was found to be significant only when treated as a moderator variable for the whole sample group and in the high-income RRCs; it had no effect in the remaining groups. These findings suggest that FDI, institutional quality and IVA do have an effect on the resource-welfare relationship. However, it is necessary to consider the particular characteristics of each country, such as natural resource productivity and income level. For Indonesia, the quantitative results indicate that it is difficult to determine the role of natural resource rents in relation to economic welfare; the estimated coefficient signs in the regression equations exhibited inconsistency. This ambivalent finding is supported by the qualitative results; interviewees suggested that the contribution of natural resources was beneficial in supporting economic growth, but not yet able to increase economic welfare. When treated as a moderator variable, FDI in Indonesia exhibits a weakening effect on the resource rents–economic welfare relationship. The qualitative results support this finding; some interviewees suggest that FDI generally favours only an exclusive group of people. The qualitative aspect of the research, comprising interviews with both government and non-government officials, suggests that strengthening the quality of institutions and encouraging the creation of increased IVA should be two key foci, if the Indonesian government is to guarantee that rent generated from the natural resource sector contributes to economic welfare. The key relevant dimensions of institutional quality are accountability, rule of law, control of corruption and regulatory quality, particularly in relation to contract transparency. In terms of creating increased IVA, current government policy regarding adding value to industry products must be maintained and improved, because this has a significant positive effect on the contribution of natural resource rents to economic welfare. This study also recommends that regulation relating to natural resources revenue-sharing must be improved, particularly in terms of the revenue-sharing allocation in the regional budget. This study recommends the formulation of new regulation to mandate natural resource revenue allocation for conservation and poverty alleviation activities, for those communities closest to resource exploitation source areas. Improvement in the natural resource revenue-sharing formula is also required to favour such areas.

The resource curse is a reasonably solid fact. – Jeffrey Sachs 2001 The link between mineral resource extraction and child development is a paradoxical one. This ‘resource curse’ is both unjust and unnecessary. – Save the Children 2003 The first Law of Petropolitics posits the following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. – Thomas Friedman 2006 This book provides compelling evidence that one of the core assumptions of the conventional literature on the resource curse – namely that ownership structure does not vary and thus cannot hold any explanatory power – is not only unfounded but also has impeded our understanding of the relationship between mineral wealth and institutions. More specifically, we utilize the experience of the Soviet successor states to demonstrate first, that ownership structure can vary even across countries that share the same institutional legacy; and second, that this variation helps explain the divergence in their fiscal regimes, and hence developmental trajectories, from the early 1990s through the mid-2000s. By documenting the variation in ownership structure over the course of the twentieth century, moreover, we show conclusively that treating ownership structure as a constant not only deprives us of a key explanatory variable but also cannot be substantiated empirically. Our findings thus also make a strong case for broadening our historical perspective. As we describe in Chapter 1, both the assumption that mineral wealth is always and necessarily state-owned and the conflation of state ownership with control have gone unquestioned for so long precisely because they reflected the empirical reality of the narrow time period under study – that is, from roughly the late 1960s to early 1990s. During this period, there was a clear convergence toward state ownership due to the nationalization wave that swept across mineral-rich states in the developing world beginning in the early 1960s. Less than a decade later, more than three-quarters of petroleum sectors in the developing world were state-owned. (See Appendix B for details). It is also during this period that the locus of bargaining power shifted from foreign investors to host governments via the onset of the obsolescing bargain. As a result, the fiscal regimes fostered under state ownership with control (S 1 ) and state ownership without control (S 2 ) were virtually indistinguishable – as were their negative social, political, and economic consequences (see Chapter 6 for details).

Drawing on institutional theory, this article examines the importance of decision-specific experience and imitative behaviour of Chinese multinational corporations’ (MNCs) foreign ownership structure decisions. From a sample of 189 outward foreign direct investment (FDI) decisions, the authors find strong evidence to support the hypothesis that Chinese firms tend to choose ownership structures based on prior experience with similar ownership structures. Moreover, Chinese firms tend to follow the ownership structure patterns established by earlier Chinese entrants. This article also investigates the moderating effects of cultural distance and host country-specific experience.

The key purpose of the Study is to examine if institutional quality complements the relationship between Ownership Structure and Corporate Social Responsibility disclosure and performance in the light of legitimacy and agency theory. To the best of my knowledge, it is the first study in literature of finance. The sample comprises of 112 top-performing listed firms (based on market capitalization) at Pakistan Stock Exchange from 2010 to 2019. Institutional quality comprised of world governance indicators which is developed via principal component analysis, an instrumental variable approach and content analysis are used for CSR Disclosure Index to demonstrate the relationship between ownership structure and CSR. The resources complementary phenomenon is adopted to examine the institutional quality's role. Our results show significantly positive impact of Institutional and Foreign Ownerships on CSR while negative significant influence of CEO Duality and Family Ownership on CSR, suggesting that well governed firms will be more socially responsible. In addition, the findings suggest the institutional quality's positive moderating role on the relationship between ownership structure and CSR, signifying the institutional quality's complementary role for the weak corporate environment in Pakistan. Our findings are robust to a series of tests by using Generalized Method of Moment (GMM).

Purpose The debate on how banks’ ownership affects banking stability and risk-taking is still ongoing, and the large empirical literature focused on the association between them is still inconclusive. This study aims to investigate the relationship between different bank ownership structures and banking stability in the Middle East and North Africa (MENA) region, in addition to exploring the mediating role of institutional quality in this relationship. Design/methodology/approach This paper uses a panel data set of banks operating in 15 MENA emerging economies and uses the generalized method of moments estimator, the least squares dummy variable corrected (LSDVC) approach and the quantile regression approach (QR) over the period 1999–2022. Findings The empirical results indicate that foreign ownership and public ownership have a negative impact on banking stability, which provides new evidence supporting the home-field advantage hypothesis. Furthermore, by assessing the significance of institutional factors for banking stability, it reveals that strict control of corruption, political stability, good quality of regulations and strong rule of law all improve banking stability even under foreign and public ownership. Practical implications This study adds important insights for MENA regulators and the banking sector, showing that the prevailing institutional factors can soften the impact of foreign and public ownership of banks operating in the MENA economies. Originality/value This study helps to close the gap in literature by comparing the global advantage and home-field advantage hypotheses to assess the impact of foreign and state ownership on banking stability in local, as well as in developing contexts. It also includes key factors of institutional quality like control of corruption, political stability, regulatory quality and the rule of law, shedding light on how these factors either mitigate or enhance the effects of ownership structures.

Natural resources, governance and institutional quality: The role of resource funds

Procyclicality of fiscal policy in oil-rich countries: Roles of resource funds and institutional quality

Ownership, Institutions and Productivity of European Electricity Firms

Ownership, Institutions, and Productivity of European Electricity Firms

Almost since the first newspaper company went public in 1963,1 questions have been raised about whether public ownership is compatible with good journalism.2 That relationship is at the heart of this article. It examines the link between two forms of ownership-private ownership and public ownership-and the content that a newspaper publishes. Of particular interest is whether one of these two forms of ownership is linked to a stronger commitment to coverage about vital aspects of civic life, such as government, national security and diplomacy.Previous ResearchScholars have looked at public ownership of newspapers from two perspectives, one loosely grounded in economically oriented theories about how firms operate and the other linked more closely to organizational sociology. The main concern of most economics-based studies has been financial performance or profits. Generally speaking, that research has found that the relationship between public ownership and financial performance is not straightforward.3 There's little doubt that publicly owned newspaper companies have a strong profit orientation, but several studies have found that they don't necessarily seek to maximize short-term profits, as is often asserted. It's also not clear that publicly held companies are any more profit-driven than privately held media businesses. Though the economically oriented studies seldom include journalistic quality or content as variables, concerns about quality and content often animate that research. For example, the impact of public ownership on journalistic quality was a key issue in Taking Stock: Journalism and the Publicly Traded Newspaper Company, which is the most comprehensive examination of public newspaper ownership.4The sociological framework takes a broader approach to understanding the relationship between ownership structure and content. Scholars such as Schudson, Demers and Shoemaker and Reese focus on the myriad of influences on content decision-making.5 For them, ownership is but one of many factors that shape content. Those factors range from the social characteristics of the message makers to the ideological systems in which media organizations operate. In The Sociology of News, Schudson addresses profit motive. While he acknowledges that it's at the heart of the commercial news businesses, he argues that market logic doesn't always dictate how a news organization operates.6 He says the desire of journalists to base decisions on their own professional judgments can constrain commercial motives. That point is evident in multiple ways in the research grounded in organizational sociology. Taken as a whole, it suggests that it's simplistic to assume that public ownership is necessarily bad for journalistic quality-or that private ownership is usually good for it.Research QuestionsCritics of public ownership worry that it creates financial pressures that undermine a newspaper's journalistic mission. Yet scholars have rarely compared the journalistic output-the content-of publicly and privately held newspapers to evaluate that thesis. That's what this research does. The independent variable-ownership structure-is defined conventionally: Publicly owned companies trade their stock on public securities markets. Privately owned companies don't trade their stock on securities markets. Because so little research has examined content differences between publicly held and privately held newspapers, it seems prudent to ask research questions rather than pose hypotheses. They are:RQ1:Is the ownership structure of a newspaper's parent company associated with differences in the subjects that the newspaper covers? More specifically, are there differences in the amount of coverage of civic affairs, crime and justice and softer subjects such as sports, personalities or entertainment?Economically oriented theories suggest that publicly owned newspapers face financial pressures that undermine coverage of civic affairs in favor of cheaper or more popular fare, such as crime, celebrities or other insignificant subjects. …

For reasons elaborated upon in Chapter 1, the literature on the resource curse has heretofore viewed ownership structure as a constant rather than a variable. In particular, this literature is characterized by a prevailing assumption that mineral wealth is always and necessarily state-owned and centrally controlled. Consequently, it has not invoked ownership structure as either a possible explanation for the empirical correlation between mineral abundance and a myriad of negative social, political and economic outcomes – poor economic performance, unbalanced growth, impoverished populations, weak states, and authoritarian regimes – or a possible remedy. Yet the empirical reality is that ownership structure varies considerably both within and across mineral-rich states over time. If one takes a broader and more nuanced view, it becomes clear – at least regarding petroleum-rich states – not only that state ownership is not inevitable but also that it is accompanied by different degrees of state control. We provide such a view in Chapter 1 (see Figure 1.1) based on an original database of ownership structure in petroleum-rich states in the developing world from the late 1800s through 2005 (see Appendix B for details).

In this paper, we examine the importance of decision specific experience for a multinational firm's foreign ownership structure and establishment mode decisions. A unique procedure to measure the decision specific experience construct is developed. Based on data for the period 1969–1991, we find strong empirical evidence from experiences of Japanese firms to support the hypotheses that firms tend to select ownership structures and establishment modes based on their experiences with similar ownership structures and establishment modes in the past.