Productivity, nationalization, and the role of \"news\": lessons from the 1970s

The number of occurrences of an old phenomenon, expropriation of foreign-owned property, had peaked in the 1970s, and virtually every significant oil-producing developing country had nationalized its oil. Nationalization again was on the rise in the 2000s. Using novel data, this paper examines nationalization and its effect on productivity. First, we document historical global trends in expropriations, and examine the effect from the 1960s to the 1990s in a sample of oil-producing developing countries. We show that nationalization brings significant productivity losses. Then, we focus on Venezuela, presenting new extensive and detailed data. In Venezuela, productivity fell sharply immediately ahead of nationalization. We suggest a less-explored channel through which nationalization affects productivity: in anticipation of nationalization, producers reduce exploration, lower employment, and increase extraction. Guided by a quantitative dynamic partial equilibrium framework for nonrenewable resources disciplined by features of the Venezuelan data, we then examine the effect of nationalization on productivity. A comparison of the simulated and time series shows that the carefully calibrated model can explain 84 percent of the productivity pattern over 1961-1980 in the Venezuelan oil industry.