The Causes and Consequences of the Saudi Crude Discount

New paper by Peck: Between 1991 and 2003, Saudi Aramco sold its crude to U.S. refineries at a substantial discount relative to Asian refineries at a total cost of approximately 8.5 billion USD. Using variation in discount receipts across refineries over time, I find that the discount rents were entirely captured by refiners as profits and were not passed through to consumers in the form of lower retail gasoline prices.
There is also evidence that the discount policy affected refiners’ political action. In particular, I find that discount receipts are associated with an increase in refiners’ overall political donations, and that other types of profit shocks were not associated with changes in political giving. This suggests that the effect of the discount was not simply a consequence of the increase in refining profits. Finally, I show that the discount resulted in a reallocation of contributions toward members of congressional committees that reviewed bills of interest to Saudi Arabia and away from those who received donations from pro-Israel interest groups.

International Commodity Prices and Political Unrest in Latin America

New paper by Maldonado: Latin America is a region characterized by a turbulent political history and a marked dependence on commodity exports. Constructing a new panel dataset covering most of the 20th century, I examine how international prices for Latin America’s principal exports influenced political unrest. I document a significant association between prices and subsequent political unrest. The results suggest that political dissidents behave rationally, choosing from a menu of protest activities. Specifically, higher export prices are associated with a lower likelihood of violent protest and a higher probability of peaceful demonstration, consistent with higher opportunity cost discouraging dissidents from undertaking riskier protest activities. This pattern is especially true for the price of commodities which produce diffuse rents which are less easily extracted by the state.

Nigeria's oil

The Economist: IN AUGUST Nigeria announced that oil production had reached a record 2.7m barrels a day but few experts believed it. Oil is also being stolen at a record rate and traders’ figures show output at well below the government’s figures. Information about Africa’s biggest oil industry is an opaque myriad of numbers. No one knows which ones are accurate; no one knows how much oil Nigeria actually produces. If there were an authoritative figure, the truly horrifying scope of corruption would be exposed...

Why Oil-Rich States are So Violent

New mimeo by Blair: I develop a theory of whether and where civil wars emerge in resource-rich states, based on bargaining within the state over the spoils and on the state's attempts to safeguard the resources. I argue that these processes are shaped by where the resource is discovered. In contrast to existing scholarship which describes oil wars over territorial control of natural resources, I predict that regional economic and security inequalities lead only to conflict in resource-poor regions. To test the theory, I present a new dataset of the timing and location of oil and natural gas discoveries and a novel causal identification strategy. I find that civil war is more likely in states with oil discoveries, but only if it is found on land where local populations can threaten to interrupt production. In stark contrast to scholarly and practitioner consensus, I find that these civil wars take place not in the oil region itself, but elsewhere in the state.

Zambia’s Mineral Tax Reforms

New ICTD paper: The recent rise in commodity prices is one feature that has influenced reforms in mineral
industries around the world. While the general determinants are becoming better understood, each country may offer new insights into this problem. This paper focuses on Zambia‟s experience to understand what determined the tax reforms there. In addition, it explores the successes and failures of the mechanisms used to ensure a stable investment environment in Zambia. The paper finds that contract clauses between mining companies and the Zambian government provided some stability, even if no arbitration has so far occurred. In addition, certain tax structures imposed so far have not provided any protection. This paper suggests a better enabling environment, including greater diversification and government administrative capacity, may make these strategies more successful in the future.

Green growth

New World Bank paper by Withagen and Smulders: This paper reviews dynamic general equilibrium models
in order to collect insights on the interaction between economic growth and environmental issues. The authors discuss the Ramsey model and extend it for natural resource inputs and pollution, as well as for endogenous technical change. Green growth becomes within reach if there is good substitution, a clean backstop technology, a small share of natural resources in gross domestic product, and/or green directed technical change.

Oil and political survival

New JDE article by Andersen and Aslaksen: Political economy theories on the “natural resource curse” predict that natural resource wealth is a determining factor for the length of time political leaderships remain in office. Whether resource wealth leads to longer or shorter durations in political office depends on the political incentives created by the natural resources, which in turn depend on the types of institutions and natural resource. Exploiting a sample of more than 600 political leadership durations in up to 152 countries, we find that both institutions and resource types matter for the effect that natural resource wealth has on political survival: (i) wealth derived from natural resources affects political survival in intermediate and autocratic, but not in democratic, polities; and (ii) while oil and non-lootable diamonds are associated with positive effects on the duration in political office, minerals are associated with negative duration effects.