Institutions and the location of oil exploration

Institutions and the location of oil exploration (2014) (with Torfinn Harding). Under review

We provide evidence that institutions strongly influence where oil and gas exploration takes place. At national borders, exploration companies drill on the side with better institutional quality two times out of three. To identify the effect of institutions, we utilise a global dataset on the location of exploration wells and borders. This allows for a regression discontinuity design, with the key assumption that the position of borders was determined independently of geology. To break potential simultaneity between borders, institutions and activities in the oil sector, we exploit the historical sequence of drilling occurring after the formation of borders and institutions. The results are consistent with the view that institutions shape exploration companies’ incentives to invest in drilling as well as host countries’ supply of drilling opportunities. It follows that the observed distribution of natural capital across countries is endogenous with respect to institutions.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s