Expropriations, political risk and the business cycle
Date
2025-12
Authors
Der Meguerditchian, Nicolás Esteban
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Buera, Francisco J.
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
This paper examines the macroeconomic consequences of oil sector expropriations in resource-dependent economies. Motivated by the nationalizations in Venezuela (2007) and Algeria (2006), I first provide empirical evidence showing that expropriations led to a persistent decline in oil production and a rise in sovereign risk. I then develop a dynamic small open economy model in which the government faces a regime-switching decision: whether to allow the foreign firm to operate under private contract or to nationalize the oil sector. Expropriations are more likely when oil prices rise, and when both the capital stock and the level of debt are high. The model reproduces key macroeconomic dynamics around expropriation events: capital stock declines before nationalization as the firm anticipates a regime switch, output drops sharply at the time of expropriation and continues to fall persistently. Consumption spikes temporarily as the government captures the full stream of oil revenues, while sovereign debt decreases in the aftermath due to tighter borrowing conditions.
Description
Fil: Der Meguerditchian, Nicolás Esteban. Universidad de San Andrés. Departamento de Economía; Argentina.