Oil discoveries and protectionism: Role of news effects

Fidel Perez-Sebastian, Ohad Raveh*, Frederick van der Ploeg

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Can oil discovery shocks affect the demand for protectionism? An intertemporal model of Dutch disease indicates that if the tradable sector is politically dominant then an oil discovery can induce protectionism. If the economy is also credit constrained, this effect is intensified upon discovery, but partially reversed when oil revenues start to flow. We test these predictions using 16.2 million, HS-6 level, bilateral tariff rates that cover 5718 products in 155 countries over the period 1988–2012, and data on worldwide discoveries of giant oil and gas fields. Our identification strategy rests on the exogeneity of the timing of discoveries. Our empirical results indicate that an oil discovery increases tariffs during pre-production years and decreases tariffs in the years to follow yet to a lesser extent, most notably in capital scarce economies with a relatively dominant tradable sector. Our baseline estimates indicate that a giant oil field discovery induces a rise of approximately 13% in the average tariff over the course of 10 years; this increase is approximately 2.5 times larger during the pre-production period when the oil discovery represents a pure news shock.

Original languageAmerican English
Article number102425
JournalJournal of Environmental Economics and Management
Volume107
DOIs
StatePublished - May 2021

Bibliographical note

Funding Information:
We are grateful for the constructive comments and advice of three anonymous referees and the editor on an earlier version of this paper. We have also benefited from helpful comments received from Jim Cust and David Mihalyi and from participants at the EARE Conference, Manchester, 2019, the 5th International Workshop on Economic Growth, Environment and Natural Resources , European University Workshop, Saint Petersburg, 2019, the Mundlak Workshop, Hebrew University, 2019, the (virtual) EARE Conference, 2020, and at seminars at UPO , Seville, and the University of Economics, Prague . Financial support from Ministerio de Ciencia e Innovación (Project PID 2019-111208 GB-I00) is gratefully acknowledged.

Funding Information:
We are grateful for the constructive comments and advice of three anonymous referees and the editor on an earlier version of this paper. We have also benefited from helpful comments received from Jim Cust and David Mihalyi and from participants at the EARE Conference, Manchester, 2019, the 5th International Workshop on Economic Growth, Environment and Natural Resources, European University Workshop, Saint Petersburg, 2019, the Mundlak Workshop, Hebrew University, 2019, the (virtual) EARE Conference, 2020, and at seminars at UPO, Seville, and the University of Economics, Prague. Financial support from Ministerio de Ciencia e Innovación (Project PID 2019-111208 GB-I00) is gratefully acknowledged.

Publisher Copyright:
© 2021 Elsevier Inc.

Keywords

  • Capital scarcity
  • Dutch disease
  • News shocks
  • Oil discoveries
  • Political economy
  • Protectionism
  • Trade policy

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