Student Registration Number: 0867237
Topic:
The political risk of expropriation in extractive industries
A study exemplifying the impact of the political indicators for the risk of abrogation of private
property in the oil and gas sector
Hand-in date:25.11.2010
Campus:BI Oslo
Exam code and name:GRA 59172 Public Opinion and Input Politics, Voters and Media
Programme:Master of Science
Table of contents
1. Abstract 2
2. Introduction 4
3. Definition 5
4. Key concept 8
5. Method and data 9
6. Analysis 10
7. Conclusion 13
8. Appendix 15
8.1 Basis for Risk Management Methodology (CISR CAN) 15
8.2 Ranking of best countries to do business, filtered by GDP 20
8.3 Getting to know the data 22
8.4 Revenue Watch Index Country Ranking 24
9. Literature review 25
1. Abstract
This paper seeks to forward the study of the linkage between institutions
and growth, by investigating the perceptiveness of property rights. Private
property rights matters not only for extractive business, but also for the economy
as a whole, as extractive business can assist in growth creation abroad. The way
they do this is to engage themselves in long-term projects, investing in
technological research, erecting fixed constructions and fostering enhanced
management competence, rather than adopting a short-term perspective. Since
extractive business are subject to demanding ex ante political bargaining, and then
ex post sensitive to foreign government intervention, it would mean that there is
always a risk of losing private property. Property rights are secured by the legal
system, and since this is an integral part of the political structure, it will follow the
form of the political institutions. Here, I test the level of property rights in a
political polarization model, in order to investigate it’s sensitivity, based on cross-
sectional panel data. Keefer & Knack (2002) argues that social polarization
reduces the security of private property. I chose to base my hypothesis on the
same assumption, but I say that maybe a model for political polarization in the
line for work done by Svensson (1998) can better explain the likelihood of loosing
private property. The result of the model shows that the historical past of a regime
matters, or rather the age of a regime, not the type, along with party competition
and ginigross coefficient. The party competition factors would indicate that the
limited degree of exercising political power is one of the political risk factors oil
and gas investors should be investigating closer, because it would indicate how
secure their private property would be in political terms. With this, I am lead to
believe that political polarization cannot better explain property rights, but it can
complement the scientific efforts made to explain variation in protection of private
property.
2
Curate´s egg:
"A curate's egg" originally meant something that has partly "bad" parts,
and supposedly "excellent" parts. It is effectively inedible, since it as a result is
entirely spoiled, but one do not redeem it for that reason. Modern usage has
tended to change this to mean something having a mix of good and bad qualities.
The humor is derived from the fact that, given the social situation, the
timid curate feels that he dare not complain about the quality of an inedible egg
that would ordinarily be immediately rejected.
Term adapted from Hanson (2007)
3
2. Introduction
An analysis of whether or not political institutions matter for growth posits
that the quality of institutions is not always a necessary impetus for development.
Even a benevolent dictator would be inclined to welcome good policies and
human capital could matter more for long-term growth, and consequently the
development of institutions (Glaeser et al, 2004). But this is not to deny the merits
of current political institutions for doing business. The openness and
competitiveness of the political system would reflect itself in the market, hence
enhancing the opportunity to do equitable commerce. Political openness means
freedom of representation and participation in the form of free elections, the rule
of law in the shape of law enforcement and contractual rights, sustainable
investment of rent extracted in the line of re-investments and redistribution of
public goods. Not to mention the freedom of the press, the right to practice ones
religion, and to void torture and death penalty. For these reasons one is not to
deny the congruence between the openness and competitiveness of the current
political systems and the market, and consequently the protection of private
property rights for extractive businesses, even if a policy choice made by dictators
can also secure private property.
The salience of private property right is vested in the positive outcome for
economic development (Levine, 2005). Securing private property matters, because
it determined whether or not extractive businesses would engage themselves in
long-term projects, investing in technological research, erecting fixed
constructions and fostering enhanced management competence, rather than
adopting a short-term perspective abroad. It is know that when property rights are
well defined, resources can be allocated efficiently and economic growth can be
promoted (Shleifer, 1995). And establishing property rights is to a large extent the
equivalence to reducing political control (ibid).
If the linkage between institutions and growth is unclear, then it can be
clarified by the nature of property rights. Private property rights matters not only
for extractive business, but also for the economy as a whole, because companies
can assist in growth creation. The quality of institutions securing this can
politically control private contracting efficiency, by not abrogating private
property whenever it deems appropriate. This could imply that rational extractive
business would establish themselves where this is the status quo. Large-scale
4
businesses often have the knowledge, capacity and resources to carrying out a
detailed analysis of the political risk factors of expropriation, prior to any initial
investment commitments. It is assumed that they are experienced in the field, and
that they would factor the political risk factors into their ex ante investment
analysis. Then the crux of my initial curiosity lies in why extractive businesses
still contemplate investments abroad, despite obvious institutional flaws.
The normative approach would be that the more political risk of
expropriation an investment carries, expected return will follow. But returns can
be low on high political risk factor, such as the threat of expropriation. Then why
would extractive business still contemplate these investments? Especially when
the assumed future estimated benefits of staying in the extractive business is not
making the hazardous investment economically worth wild. Why are they still
striving to maintain presence? And why are they are not positioning themselves as
subjects to the model of repetitive game theory? The model assumes that a default
from cooperating by one of the actors will lead to a disincentive to reenter a new
game with the same agent, based on the previous experience, ergo advocating tit-
for-tat outcomes. Since the extractive businesses follow the natural resources,
often place in politically unstable jurisdictions, it is the only way to secure their
existence. For this reason, a contribution to the research on political risk of
expropriation matters.
3. Definition
The political risk of expropriation should not be considered less pertinent,
even of some extractive business are used to operate in such as hostile
environment. Traditionally, political risk of expropriation has been defined in
terms of political and civil stability of a country, in the form of outbreak of war,
civil war, military coups, dictatorships, piracy and social revolution. As these are
the factors that have defined the propensity of loosing property rights, it can be
taken a step further. A transition from Vernon (1971) obsolescing bargaining to
the political bargaining model (Eden et al, 2004), displays that ex ante and ex post
political bargaining power can still prove to be obsolete for MNCs. Extractive
business can be subject to demanding ex ante political bargaining, and then ex
post sensitive to foreign government intervention. This would mean that there is
always a risk of losing private property, and that the government abroad can
decide to take over and run an extractive business itself, at any point after the
5
initial investment. This would imply an involuntary take-over of investment
capital, after the build-up of technology and facilities, as well as management
skills and competences, without being compensated. And as if the uncompensated
loss might not be enough, it can be assumed that government actors can continue
to invent new ways of abrogating private property.
Since extractive business need to expand their business models into new
markets, where the natural resources are located, the bargaining power of the
investors may be dictated by the terms of the incumbent government. The degree
of loss of property right varies, from being subject to rules and regulation, a
political form of command and control, to the threat of outright expropriation
(Molden, 2008). This risk of unwanted political consensus (ibid), which means
that property rights are directly affecting by a set of political and economical
factors, will be the core of my study. The political risk indicators directly
measuring the political risk of expropriation are crucial, because they should have
an effect on the overall economic country variables the long run, and more
specifically, they have an effect on the revenue of extractive businesses balance
sheets in the short-run.
By extractive business I mean commercial entities extracting minerals,
such as commodities in mining; coal, iron ore, alumina, diamonds, gold, silver
and agrarian commodities; forestry, timer and crops. However, in this paper I
have chosen to focus on oil and gas. After all, Norwegians can legitimately claim
that we are obsessed with oil and gas. If national jurisdictions abroad are not
necessarily compensating these extractive businesses for the political risk of
loosing private property, then the risk indicators measuring the risk of
expropriation are a pertinent research study (appendix 8.1). Oil and gas companies
often enter markets, which are characterized as politically unfriendly
environments, as this is where the endowment factors are located.
The first thought that may come to one’s mind, when having to assess the
nature of property rights, is that it first and foremost a legal right. Hence, the
quality of the legal system will dictate whether or not property rights can be
secured. This would imply that the openness and competitiveness the legal system
matters. Haber et al. (2008) work on “Political Institutions and Financial
Development” states that one way of avoiding expropriation is rather to create
political institutions that limit the authority of and discretion of governments.
6
Since the legal system is an integral part of the political structure, it will follow
the form of the political institutions. A constrained political system, without
mutually reinforcing institutions, will also constrain market competition. This
concept of congruence, between the openness and competitiveness of political
systems, and the openness and competitiveness of the (financial system) market,
posits that it is not necessarily the legal structure that dictates growth, openness
and competitiveness. And paradoxically enough, government’s commitment to
not interfere in the market, leads to the commitment problem. If the government
can define and protect property rights and investors, it is just as well fully capable
of abrogate them when necessary. This could adversely affect economic growth
(Harber et al. 2008:279). But this is not to deny that bureaucratic transparency, the
quality of regulators, competition in the public sector, breaking up state
monopolies, transparency when it comes to how natural resources are managed
and investor protected matters, when it comes to guaranteeing property rights. A
balances picture is sought after.
Another current intuition is that democratization and government
constraints might not suit all growing economies. It is not necessarily the first
order condition for growth (appendix 8.2). Growth and the security of property
rights might as well come from benevolent dictators. They do not have
institutional constraints limiting their degree of freedom and they can still
advocate for growth. This is similar to welcoming a benevolent dictator, who can
implement good policies, rather than the pirate. This is because under a
dictatorship one will have the incentive to produce (Olson, 1993). Glaeser et al.
(2004) research on “Do Institutions Cause Growth?” displays that it is not so
much the political institutions, which causes growth. The authors argue that as
countries experience growth, they accumulate human capital, even under a
dictatorship, and become richer. As they become richer they are increasingly
likely to improve their institutions. I would like to highlight that as some countries
grows richer, whilst still being subject to a distorted political leadership, the
national wealth will end up in the hand of the few, leading kleptocracy. That is
why the political variables and economic fundamentals leading to long run
sustainable growth, matters for the security of investors property rights.
7
4.Key concept
Keefer & Knack (2002) argues that social polarization reduces the security
of private property. They investigate the relationship between security of
contractual right, income and land inequality, as well as ethical fraction/tension.
They also control for political violence and instability. I chose to base my
hypothesis on the same assumption, but I say that maybe a model for political
polarization (Svensson, 1998) can better explain the likelihood of loosing private
property, before I move on to assessing how my political risk analysis this can be
applied for oil and gas investments.
In my model I investigate the relationship between the political risk factors
for political checks and balances and the risk of losing private property for
extractive businesses, following the same logic as Keefer & Knack (2002) and
Svensson (1998). It seeks to forward their studies on explaining the effect of 1)
polarization on private property, 2) effect on private property on growth, 3) effect
of polarization on growth and 4) effect of polarization on growth, through private
property. Here, I am prematurely assuming that a large political discrepancy or the
absence of stability, and checks and balances, would have a negative effect on
property rights. This would imply that the elitist rich would protect their positions
and assets privately, by limiting the opportunity of the masses (Levine, 2005). The
unequal distribution of wealth would make it hard to protect property from
coercion by powerful economical and political actors, by the government itself
(ibid), as the elitist rich actually wants poor public protection of property to be
maintained, since they themselves can afford private protection (Sonin, 2003). If
this is the case then I argue that the political and economical elite would favour
selective law enforcement, coupled up with powerful informal network, to protect
their own positions. The implications this might have for extractive businesses is
that the level of property rights for their investments will be low, and that they
will not necessarily be compensated for the risk taking, even if some institutions
offer high rewards for those who manage to maintain their presence.
If I rather assume that small discrepancies in political polarization would
mean a stronger propensity to secure property right, I am also assuming that this
means a less divided country, politically, economically and socially speaking.
And indirectly, I say that when there is low level of political polarization and a
strong percentage of veto players or a strong opposition, which can oppose to
8
absolute power, through a system of stability, checks and balances, property rights
would be better secured. Therefore, in my political polarization model I say that
variables, which are proxies of bureaucratic transparency, healthy regulation and
competition in the public sector, adequate management of state monopolies and
the share of private ownership in state-owned companies, can reveal the degree of
political discrepancies, and would therefore also indicate societal disparities. Less
political polarization would limit governmental freedom to expropriate private
property. And that it is not so much the limits imposed by or on the legal system
that matters, but rather how political variables for polarization that can predict the
security of private property.
5. Method and data
In order to create a comprehensive model for assessing cross-
country property rights for extractive businesses, controlled for by political
polarization, I carry out a linear regression analysis based on cross sectional panel
data (12 years). This will assist in understanding whether or not there are any
statistically significant correlation coefficients, which can indicate any direction
of cause and effect between the level of property rights protection and political
discrepancies. The model is constructed to further build on the knowledge of
assessing the relationship between: 1) political polarization on private property, 2)
effect on private property on growth, 3) effect of political polarization on growth
and 4) effect of political polarization on growth, through private property. I have
not imposed a time lag between the dependent and independent variables. Thus,
the following multiple regression model is proposed, where the average for 12
years (1995-2006) has been used:
Yit = + 1X1it + 2X2it + 3X3it + 3GiniGrossit +
Yit = Level of property rights in a given country at a given time (HPROP)
X1it = Vector of variables for Democracy and Autocracy (Polity IV)
X2it = Vector of variables for Authority Characteristics for the Executive (ibid)
X3it = Vector of variables for Authority Characteristics for Political Competition and
Opposition (ibid)
GiniGrossi = Gini coefficient (SWIID)
I use the variable “Property Rights” from the Index of Economic Freedom,
which can be downloaded from HPROP, as my dependent variable. The index is
given, from 1-100, where a higher score means higher level of private property
protection. The dataset covers 183 countries, from 1995 to 2010. I use data for 9
159 countries from 1995 to 2006. For the 3 vectors of independent variables the
Polity IV covering 189 countries from 1800 to 2007, has been utilized. I use data
for 144 countries, from 1995 to 2006. GINIGROSS independent variable has been
extracted from Standardized World Income Inequality Database, covering 135
countries from 1960 to 2006. The index is given from 1-100, where a lower score
means lower inequality. I use data for 153 countries, from 1995 to 2006. Missing
values and multicolinearity has been checked and taken into account (appendix
8.3).
6. Analysis
Table for political polarization and property rights (1995-2006)Equation 1 2 3 4 5 6(Constant) 17,98 -2,57 -47,27 2,95 6,65 3,68
6,41 12,06 13,99 21,62 13,72 13,66
2,81 -0,21 -3,38 0,14 0,48 0,27
DEMOC 4,37 4,26 -9,81 -3,72 1,54 1,92
0,84 1,99 3,19 4,07 1,06 1,04
5,18 2,14 -3,08 -0,91 1,45 1,85
AUTOC 2,08 1,44 7,08 5,70 0,86 2,50
1,09 1,28 2,16 2,77 1,67 1,29
1,91 1,12 3,28 2,05 0,52 1,94
DURABLE 0,20 0,19 0,15 0,17 0,17 0,19
0,05 0,05 0,05 0,05 0,05 0,05
4,08 3,84 3,09 3,31 3,38 4,00
XRREG 12,62 -13,01 -19,12 6,34 7,96 9,87 1,99 -1,63 -1,94
XRCOMP -9,84 31,10 24,75 7,39 10,35 12,98 -1,33 3,00 1,91
XROPEN 0,49 -10,49 -9,11 2,51 3,19 4,26 0,19 -3,29 -2,14
XCONST 1,85 13,62 6,45 2,89 3,52 4,48 0,64 3,88 1,44
PARREG 0,71 0,91 2,77
1,88 2,06 1,83
0,38 0,44 1,51
PARCOMP 20,51 15,12 6,95 9,49 4,56 5,44 3,13 2,66
4,50 2,78 2,22 3,57
GINIGROSS -0,09 -0,07 -0,11
0,14 0,14 0,14
-0,62 -0,47 -0,80
R sqre 0,52 0,55 0,64 0,64 0,62 0,61Adjusted R sqre 0,51 0,52 0,61 0,60 0,60 0,60
Std. Error of the Estimate 15,25 14,99 13,92 13,30 13,35 13,44
Std.Errors and t-values are below the correlation coefficient values. All the independent variables correlation with the dependent varaible at significance level 0.01 (2-tailed).
10
The result of the analysis shows that the explanatory variables in the six
equations I generated can explain between 50 and 60% of the variations of the
independent variable. As 40 % to 50% of the variation in property rights can be
accounted for by other variables, a model for social polarization might have a
higher degree of explanatory power, that a political polarization model.
Multicolineraity in the independent variables for polarization has been accounted
for, but not totally eliminated. However, I have decided to keep the effect
variables that are relevant to discuss in the light of the hypothesis at hand.
When interpreting the parameter estimates, the DEMOC variable had a
positive effect on property rights in equation 1 and 2 , but started to gain a
negative effect, in equation 3 and 4, given that it multicorrelates with DURABLE,
GINIGROSS, XROPEN and XRREG. As the two latter variables were removed
in equation 5 and 6, the DEMOC variable turned positive again, but it did not
return to the same strong positive effect as previously and it`s t-value remained
below 2. The AUTOC control variable was not removed, as it proved to be
significant in equation 3 and 4 in term of it`s t-value. The reason for this is that it
correlates with PARCOMP. DURABLE persist as being a stable control variable,
with a reasonable good t-value in all the equation. It shows it would affect
property rights with between .15 and .20 units of increase, in a scale from 0 to 100
when it increases by one unit increasing. It correlated with DEMOC, but it is
nevertheless a strong indicator for the historical past of a given regime. As it
increases, the more probable it might be that the stability intact. Then it might not
matter if a country is democratic of autocratic, for property rights. It is more that
stability of the regime is more valuable. If the regime is democratic, it could lead
to the commitment problem. If governments are powerful enough to secure
property rights, it is also powerful enough to expropriate it. None of the
independent variables for “Authority Characteristics-Executive Recruitment”,
seemed to work well in the modelling. Due to their low level of statistically
significant, they where consequently removed. The same applied to the variable
for “Authority Characteristics-The Independence of Executive Authority”. This
pinched me, at this might insinuate that the formal restriction on the executive,
and possibly it’s party’s majority position would not have that much of an effect,
statistically speaking, on whether or not property rights can be secured. That leads
11
me to believe that regime stability matters more, that the head of the state. This
can also be read in the line of Glaeser et al (2004) research, which says that a
dictator or an autocratic regime would not worsen property rights. After all, it
represents a form of stability. One could still do business with benevolent
dictators and bad governments. PARREG, measuring party regulation, proved not
to be reasonable measurements for explaining variation in property rights.
PARREG proved to be better for explaining variation in property rights.
According to equation 3-6, it would positively affect property right by increasing
it with 7 and 20,5 on a 1 to 100 scale. When adding the GINIGROSS, it displays
an expected effect. A small increase in inequality would slightly negatively affect
the property rights scale by decreasing it with ,07 to ,11 points on a 0 to100 scale.
It displays that increased social polarization would have a negatively impact on
the protection of private property.
The model tested does not display whether or not legislators are elected by
party competition or the percentage of veto players in the government. Nor have I
tested a measurement for the vote shares in the opposition, which I believe are
good indicators for property rights as well. For the purpose of checks and balances
these mentioned variables could have both strengthen and weaken the protection
of private property. In my case I would have argues that they could have
improved the protection of private property. This leads me to comment that there
might have been other political factors that could have better explained variations
in the dependent variable. And it might rather have been better to interpret
variables for the power of economical actors (state monopolies) and civilians
(strength of civil society). They also might have been more suitable for indirectly
explaining a variation in property rights.
The result of the model shows that the historical past matter, or rather, that
the age of the regime in put in place, along with the party competition and
ginigross coefficient. The party competition factors would indicate that the limited
degree of exercising political power is one of the political risk factors oil and gas
investors should be investigating closer, because it would indicate how secure
their private property would be in political terms. With this, I am lead to believe
that political polarization cannot better explain property rights, it can only
complement the scientific efforts made to explain variation in protection of private
property.
12
7. Conclusion: Property Rights, political polarization and growth
Since political polarization can complement the study of better explaining
the security of property rights, it can partly represent an effect on economic
growth. And as stated in the introduction, that property rights effects national
prosperity (Levine, 2005), so this type of academic research matters for growth.
This is line with the thinking of Keefer & Knack (2002). And this is what
extractive business may want to analyse when contemplating investments and
evaluating the political risk factors.
One would most certainly like to see a balanced picture, between private
contacting efficiency and freedom from political coercion on property rights. But
this might not always be found in endowments areas. Extractive businesses are at
times forced to face risks without compensation (Molden, 2008). But for the
purpose of analysing the issue at hand, my results show that the stability, and
checks and balances in the political system limits the coercive power of the state,
and this might lead to growth, via property rights. It seems that the demand for
public protection of property rights is a social demand, which needs
representation. Some economic actors (the elitist rich for instance) might want to
see weak protection of property, as they want to be able to maintain their ability to
expropriate. Large business and social actors may also want prevent governments
from securing this public good, so the larger the polarization in society, the larger
will the resistance to reforms be. This is congruent with the study done by Keefer
& Knack (2002).
Svensson’s (1998) study proves that polarized governments might not
necessarily want to secure property rights. It might rather choose to sustain from
investing in reforms and restructuring the legal system, first and foremost because
it is unstable and secondly, because this bears a cost it might not be willing to
assume. The result would be that this would affect future government’s ability to
reform, collect taxes and spend it on public goods, not valued by the current
government. For this reason, not reforming becomes an optimal solution. And it
would be easier to implement selective law enforcement. The role of checks and
balances from the civil society has not been covered in this paper.
Further investigation on the links between the degree of transparency and
accountability in society and growth (Renzio et al, 2009) through property rights
is recommended. The transparency index for the management of for natural
13
resources may assist (appendix 8.4). Although the quantity of this type of data is
available, it might not necessarily say something about the quality (ibid). It would
also be of interest to investigate the link between human development and growth,
via property rights. And I would also recommend novice researchers to look at the
below mentioned dataset for further investigation of property rights. Maybe it
might provide some indications for the role of civil society when it comes to
discerning the growth puzzle, through property rights.
Table for recommend further research from the WVS database.
Vector 1: Freedom Set 2: Political aspect Set 3: Democracy aspect
A173, which measures
freedom of choice and
control
E032, which measures
freedom and equality
E 059, which measures
allowed freedom
A102, which measures
politically active
E010, which measures
free speech
E032, which measures
political action
E110, which measures
democratic development
E111, which measures
rating of political system
E117, which measures
political system
These recommendations could in some way imply the further survival of
the research done in political, economical and social polarization and property
rights for the oil and gas sector.
14
8.Appendix
8.1: Basis for Risk Management Methodology (CISR CAN)
Statoil. 2009*. Country Risk and Reputation Management. Governing document.
Classification: Internal.
* The information contained in this document is CONFIDENTIAL and is intended for the addressee only. Any unauthorised use, dissemination of the information or copying is prohibited.
15
16
17
18
8.2: Ranking of best countries to do business, filtered by GDP
Adaped from Special Report, Best Countries for Business. 2009. URL accessed:
http://www.forbes.com/lists/2009/6/bizcountries09-best-countries-for-
business_Best-Countries-for-Business_Name.html, 11.10.10
19
Map reflecting the findings of Freedom House's 2010 survey, concerning the state
of world freedom in 2009, which correlates highly with other measures of
democracy. Some of these estimates are disputed.
Free (89) (marked in green)Partly Free (62) (marked in yellow)Not Free (42) (marked in purple)
Map of Freedom. 2009. URL accessed:
http://www.freedomhouse.org/uploads/fiw09/MOF09.pdf, 11.10.2010
20
8.3: Getting to know the data
Deleted Property Rights Countries, with % of missing values 1995-2006100 % missing values
1 Afganistan2 Comoros3 Dominica4 Eritrea5 Kiribati6 Liberia7 Liechtenstein8 Macau9 Maldives10 Micronesia11 Saint Lucia12 Saint Vincent and The Grenadines13 Sao Tome and Principe14 Seychelles15 Solomon Islands16 Timor-Leste17 Tonga18 Vanuatu
More than 50% missing values19 Bhutan20 Burundi21 Central African Republic22 Macedonia23 Montenegro24 Serbia25 Somalia (failed state)
N value countries: 159
Overview of the scales of the political polarization vectors used
Vector 1: Democracy and
Autocracy
Vector 2: Authority
Characteristics for the
Executive
Vector 3: Authority
Characteristics for Political
Competition and Opposition
DEMOC: 1-10, 11 points
AUTOC: 1-10, 11 points
DURABLE: 0 as starting
point
XRREG: 1 (unregulated) –
3 (regulated)
XRCOMP: 1 (selection) – 3
(election)
XROPEN: 1 (closed) – 4
(open)
XRCONST: 1 (unlimited
authority) – 7 (executive
party subject)
PARTYREG: 1 (unregulated) –
5 (regulated)
PARCOMP: 0 (unregulated) –
5 (not applicable)
21
IndicatorsN value country N value observations Min Max Mean St.Dev
Years 12 19952006
Dependent variable from Heritage FoundationPropertyRights 159 1783 10 90 50,72 22,58
Independent variables from Polity IV
Indicators of Democracy and Autocracy DEMOC Institutionalized Democracy 144 1830 0 10 5,38 3,88AUTOC Institutionalized Autocracy 144 1830 0 10 2,17 2,95
DURABLE Regime Durability 164 1927 0 192 22,59 29,53Authority Characteristics-Executive Recruitment
XRREG Regulation of Chief Executive Recruitment 144 1830 1 3 2,55 0,50XRCOMP Competitiveness of Executive
Recruitment 144 1830 0 3 2,04 1,04XROPEN Openness of Executive Recruitment 144 1830 0 4 3,36 1,30
Authority Characteristics-The Independence of Executive AuthorityXCONST Executive Constraints (Decision Rules) 144 1830 1 7 4,82 2,06
Authority Characteristics-Political Competition and OppositionPARREG Regulation of Participation 144 1830 2 5 3,35 1,13
PARCOMP The Competitiveness of Participation 144 1830 1 5 3,34 1,30SWIID
GiniGross 135 1194 33 88 52,03 9,98Valid N (listwise) 111
Coefficient Correlations
gini_gross_mean autoc_mean durable_mean
xropen_mean parreg_mean xrreg_mean
parcomp_mean xconst_mean xrcomp_mean democ_mean
gini_gross_mean 1,000
autoc_mean -,001 1,000
durable_mean ,023 -,038 1,000
xropen_mean ,078 -,759 ,037 1,000
parreg_mean ,208 -,656 -,292 ,345 1,000
xrreg_mean ,013 -,735 -,019 ,825 ,362 1,000
parcomp_mean -,038 ,757 -,043 -,702 -,472 -,665 1,000
xconst_mean -,051 ,579 -,129 -,649 -,184 -,530 ,728 1,000
xrcomp_mean -,048 ,718 -,067 -,927 -,250 -,856 ,778 ,715 1,000
democ_mean ,070 -,432 ,096 ,663 ,041 ,522 -,780 -,894 -,804 1,000
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8.4 Revenue Watch Index Country RankingCountry scores are constructed as an average of the Revenue Watch Index’s transparency indicators. Countries are ranked
according to their average score.
URL accessed: http://www.revenuewatch.org/rwindex2010/rwindex.html, 11.10.2010
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9. Literature Review
Eden, L. 2004. From the Obsolescning Bargain to the Political Bargain Model.
Bush Scholl Working Paper # 403
Glaeser, E. L, La Porta, R, Lopez-De-Silanes, F. & Shleifer, A. 2004. Do
Institutions Cause Growth? Journal of Economic Growth 9: 271-303.
Hanson, P. 2007. The Russian Puzzle. International Affaires, 83:5, 869-889
Haber, S, North, D,C & Weingast, B, R (ed). 2008. Political Institutions and Financial Development. Social Science History.
HPROP. 2010. Heritage Foundation, economic opportunity and prosperity. URL accessed: http://www.heritage.org/index/, 11.10.2010
HPROP. 2010. Property Rights. URL accessed: http://www.heritage.org/index/Property-Rights.aspx, 23.11.2010
Keefer, P & Knack, S. 2002. Polarization, politics and property rights: Links between inequality and growth. Public Choice, 111, 127-154
Levine, R. 2005. Law, Endowments and Property Rights. Journal of Economic Perspectives, 19:3, Summer 2005, 61-88
Molden, L. 2008. Fixed is Risky: Industry specific Profitability under Political Risk. MSc thesis, 1004
Olson, M. 1993. Dictatorship, Democracy and Development. American Political
Science Review. 87:3, 567-576
Polity IV. 2010. Polity IV Project. URL accessed from BI’s database:
http://home.bi.no/a0110709/PolityIV_manual.pdf, 26.11.2010
Renzio, P, Gomez, P, Sheppard, J. 2009. Budget transparency and development
in resource-dependent countries. UNESCO. Blackwell Publishing.
Shleifer, A. 1995. Establishing Property Rights. IBRD
Sonin, K. 2003. Why the rich may favor poor protection of property rights.
Journal of Comparative Ecnomics 31, 715-731
Svensson, J. 1998. Investment, property rights and political instability: Theory
and evidence. European Economics Review 42. 1317-1341
http://www.siuc.edu/~fsolt/swiid/swiid.html,
Statoil. 2009. Country Risk and Reputation Management. Governing document.
(WR1732) Classification: Internal. Stavanger 4035
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