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Essays on Macroeconomics and Oil

  • Author(s): CAKIR, NIDA
  • Advisor(s): Ohanian, Lee E
  • et al.

In these essays, I examine (i) the empirical methods that are widely used in the literature to measure total factor productivity growth and (ii) the impact of nationalization on productivity in the oil industry. The first chapter, which is an ongoing work with SHI, Wei, investigates two empirical measures, quantity-based (primal) measure and price-based (dual) measure, of total factor productivity growth. My co-author and I analyze how these two measures are affected by output market imperfection or variable capacity utilization. We find that under constant-returns-to-scale production function assumption, existence of the imperfect competition in the output market creates a gap between the measured TFP growth and the true TFP growth, no matter which method is used. However, theoretically, it does not affect the equivalence between the two measures. Under variable capacity utilization, we show that constant-returns-to-scale assumption is almost enough to guarantee the validity of the two methods in correctly capturing the true TFP growth. In the second and third chapters, I analyze the link between nationalization and productivity. The second chapter documents the trends in expropriation acts, and evaluates the impact of expropriations on labor productivity of resource-rich developing countries in the oil industry. In the first part of this chapter, I investigate the trends in the expropriation acts that took place in 102 developing countries during the period 1922-2006. I find that more than half of the acts occurred between 1970 and 1976, there has been an increase in the number of expropriations in recent years, and the extractive sector including petroleum is more likely to be expropriated. Motivated by these facts, in the second part, I examine the oil industry in a period of widespread expropriations, the 1970s. In a sample of major oil-producing countries including OPEC and non-OPEC members, I show that losses in relative labor productivity after nationalization range from 25 percent to 55 percent. In the third chapter, I attempt to provide an answer for why nationalization is associated with lower productivity by examining the case of the 1975 Venezuelan oil industry nationalization. The first part of the chapter documents the facts. I find that prior to nationalization there was a significant contraction in manpower (particularly in the foreign work force) and exploration, and an increase in production and productivity. Production and productivity declined sharply, however, by the beginning of the nationalization process. This decline continued even after the process was finalized and a substantial expansion took place in the industry. In the second part, I explain these facts by using a dynamic partial equilibrium framework for nonrenewable resources featured by imperfect substitutability between domestic and foreign workers. The anticipation of nationalization preceding 1970 can explain the drop in the total work force at the expense of lower exploration which accompanies increasing productivity. The lost foreign expertise can explain the path of productivity during and after nationalization. A comparison of the simulated and actual time series shows that around 56 percent of the increase in productivity prior to 1970, and about 39 percent of the decline in productivity during and after the nationalization process can be attributed to the proposed mechanism.

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