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

22

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

23

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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