Does the Acquisition of Mines by Firms in Resource-importing Countries Decrease Resource Prices?

Transcription

1 ET Discussion Pae Seies 3-E-073 Does te Acquisition o Mines by Fims in esouce-imoting Counties Decease esouce Pices? HGASHDA Keisaku Kwansei Gakuin Univesity MOTA Tamaki Yamanasi Peectual Univesity MANAG Sunsuke ET TAKAADA Yasuio Nanzan Univesity Te eseac nstitute o Economy, Tade and ndusty tt://

2 ET Discussion Pae Seies 3-E-073 Setembe 03 Does te Acquisition o Mines by Fims in esouce-imoting Counties Decease esouce Pices? HGASHDA Keisaku Scool o Economics, Kwansei Gakuin Univesity MOTA Tamaki Faculty o Global Policy Management and Communication, Yamanasi Peectual Univesity MANAG Sunsuke Gaduate Scool o Envionmental Studies, Tooku Univesity TAKAADA Yasuio Faculty o Policy Studies, Nanzan Univesity Abstact Tis ae examines bot teoetically and emiically te eects o te acquisition o mines by ims in esouce-imoting counties on esouce ices. n te teoetical at, we conside a simle two-eiod model. We demonstate tat te acquisition o mines may incease eite esent o utue esouce ices. Tis imlies tat te consumtion o esouces in eite eiod may decease. Stategic beavio o a esouce-mining im, demand o inal goods, and extaction costs lay key oles. n te emiical at, using a dynamic anel model and oil ice data, we estimate te eect o te acquisition o mines on esouce ices. We ind tat ices in te esent eiod incease, wile tose in te utue eiod decease. Keywods: Acquisition o mines, esouce ices, Extaction cost JEL classiication: Q3, Q34. ET Discussion Paes Seies aims at widely disseminating eseac esults in te om o oessional aes, teeby stimulating lively discussion. Te views exessed in te aes ae solely tose o te auto(s), and do not eesent tose o te eseac nstitute o Economy, Tade and ndusty. Tis study is conducted as a at o te Poject "Economic Analysis o Envionmental, Enegy, and esouce Stategies Following te Geat East Jaan Eatquake" undetaken at eseac nstitute o Economy, Tade and ndusty (ET). We ae gateul to Masaisa Fujita, Kenici Akao, Sio Hoi, Hiosi Oasi, Akia Hibiki, Masayuki Moikawa and ote aticiants o Discussion Pae Semina at ET o elul comments and suggestions. Te autos gateully acknowledge inancial suot om Jaan Society o te Pomotion o Science unde te Gant-in-Aid o Scientiic eseac (B).

3 . ntoduction Enegy esouce suc as etoleum and natual gas, common metals suc as ion, coe, and aluminum, and mino metals suc as nickel, come, titanium, and alladium ae indisensable o moden economic activities. Accoding to te economic gowt o many develoing counties, demand o esouces ave been inceasing constantly and, accodingly, te imotance o stable ocuement o esouces ave become imotant o esouce imoting counties. n aticula, te esent eseves o mino metals ae small, and deosits ae unevenly distibuted, and tey ae sometimes costly to extact. Teeoe, mino metals ae moe scace tan ote kinds o metals. Even ote kinds o esouce ae also distibuted unevenly. Fo examle, wold oil eseves is.657 tillion baels as o te end o ecent o tis eseve is existed in Venezuela, 6.ecent in Saudi Aabia, and 0.6 ecent in Canada. 48. ecent o total oil eseves is existed in te Middle East (see Figue ). Fo some oil oducing counties suc as te United States and Bazil, consumtion is geate tan oduction (Figue ). Uneven oduction and distibution is moe emakable in te case o mino metals. 3 Fo examle, 77 ecent o wold oduction o Beyllium, wic is used in aeosace and nuclea industies, is extacted in te United States. Moe tan 90 ecent o Niobium, wic is used to stengten steel, is oduced in Bazil. Moeove, 7 ecent o Platinum, wic is used as anti-cance dug and catalyst o uel cells, is oduced in Sout Aica. Te situation is te same o eseves. Fo examle, moe tan 90 ecent o Platinum is existed in Sout Aica. Tese esouces ae mainly sulied by small numbe o ims, wic ae called esouce See BP, Statistical eview o Wold Enegy 0 o te details. tt:// 3 Ou descition is based on te data o Mineal Commodity Summaies 0, U.S. Geology Suvey. tt://mineals.usgs.gov/

4 majos. n te case o etoleum, we can enumeate Exxon Mobil Cooation, Bitis Petoleum, oyal Dutc sell, and so on. n te case o metals, BHP Billiton, io Tinto, and VALE ae majos among otes. Fo examle, te eseve o coe concentates in Cile. Moeove, as o 0, te sae o to 7 majos o suly is about 50 ecent. Te situation is te same o ion, etoleum, and nickel. On te ote and, te numbe o intemediate and inal goods oduces, wic use esouces as inuts, is muc geate tan tat o sulies (esouce majos). Tus, in geneal, sulies ave bagaining owe. Tus, it is vey imotant o tose intemediate and inal goods oduces to ocue esouces stably at lowe ice. n act, some o tose oduces acquie inteests o mines by temselves. Fo examle, Nion Steel Cooation and JFE Steel Cooation acquied inteest o mines o coals and mino metals. esouce extaction ims in esouce imoting counties also acquie inteests actively. Fo examle, Sumitomo Metal Mining Cooation announced its lan to acquie inteests in coe mines: it will incease its inteests om 0 tousand tons (0) to 300 tousand tons (0). Te govenment and govenment inancial institution ave been suoting tese acquisition activities o ims in its own county. t takes a long time o ims to exloe and develo new mines. Howeve, it is uncetain ow many eseves ims will be able to exloe. Te esouce ice may also vay dastically in a sot eiod. Tus, tee is a isk tat te long-tem oit om exloation vaies dastically. On te ote and, stable ocuement o esouces is imotant not only o ims wic use esouces as inuts but also te esouce imoting county. Tus, it may be beneicial to te society to sae te isk o exloation toug suot olicies. n te case o Jaan, te Ministy o Economy, Tade and ndusty suot Jaanese ims to acquie inteests o mines in oeign counties toug Jaan Bank o ntenational Cooeation, Jaan Oil, Gas and Metals National 3

5 Cooation, and Nion Exot and nvestment nsuance. Tis suoting olicy givens Jaanese ims incentives to acquie inteest o mines. Fig. eseves o Petoleum (0, one billion bael) 0 Poved_eseve 西 50 西 0 東 50 東 00 東 50 東 Fig Oil Poduction minus Oil Consumtion (0, one tousand bael e day) 0 esidual 0 7, 5,, 西 50 西 0 東 50 東 00 東 50 東 Souce BP Statistical eview o Wold Enegy June 0 4

6 Fist, tis ae teoetically examines te eect o acquisition o mines by ims o esouce imoting counties on te esouce ices using a simle two-eiod model. Because it is consideed tat te suot by te govenment encouages te acquisition activities, te esults imlicitly suggest te eect o suot by te govenments o esouce imoting counties. We examine te eect on te esouce ice in eac eiod: te esent eiod and te utue eiod. Second, to veiy te imlication obtained by te teoetical analysis, we estimate te eect o esouce acquiing olicies o esouce imoting counties on te esouce ices using a dynamic-anel model. Te teoetical model as tee eatues. Fist, tee is one esouce extacting im (Fim ) in te esouce exoting county. On te ote and, tee ae n inal goods oduces. Te esouce extaction im is able to detemine te esouce ice. Second, one o inal goods oduces is located in te ome county (Fim ), and it detemines te investment amount o acquisition o inteests o mines in te beginning o te ist eiod. Howeve, it can extact esouces om its own mines only in te second eiod. Tid, te extaction cost o Fim deends on te esouce stock. Tus, te maginal extaction cost in te second eiod is ige tan tat in te ist eiod. Tese settings o te model take into consideation te ollowing two acts: ist, te numbe o ims becomes vey small in te uwad sectos o esouce industies; second, it usually takes a long time to exloe new mines; second; and tid, te extaction cost inceases as te esouce stock becomes smalle. 4 Te main esults o te teoetical analysis ae as ollows. An incease in te acquisition o mines by Fim may incease te esouce ice in eite te ist o second eiod. Tis esult imlies tat consumtion o esouces may decease in eite eiod. Stategic 4 Te teoetical analyses o esouce ices ave been conducted o te ast seveal decades. A ew aticles demonstated te dynamic ocess o esouce ices (Gilbet and Goldman, 978, Ul and Folie, 980), and ote aticles tackled te oblem o oligoolistic esouce makets using twoeiod models (Sadosky, 99, Polasky, 996). n tis ae, small-scale ice takes extact esouces om tei own mines only in te second eiod. Tus, in tems o decision making o a lage-scale esouce extaction im wic is located in te esouce exoting county, ou model is based on Gilbet and Goldman (978), wic examined te monoolist s beavio acing te ossibility o new enty in te utue. 5

7 beavio o Fim, demand stuctue o inal goods, and te extaction cost o Fim lay key oles in detemining te ice cange. n te emiical at, we adot a econometic model wic is consistent wit te teoetical analysis. Ten, we test te tee attens o ice canges obtained in te teoetical at. We use te etoleum data in tems o data availability. 5 Te stuctue o te ae is as ollows. Section descibes te teoetical model. Section 3 examines te equilibium ice and extaction amounts. Section 4 investigates te eect o an incease in acquisition o mines by a inal goods oduce on te esouce ices. Section 5 estimates an emiical estimation to test te teoetical esults. Section 6 ovides concluding emaks.. Teoetical Model Tee is only one esouce sulie (Fim ), wic is located in te esouce-exoting county (County ). Tee ae n ims tat oduce inal goods X om te esouce, wic ae located in esouce-imoting counties. One o tose inal goods oduces (Fim ) is located in te ome county. Te inal goods oduces including Fim suly tei own oducts to te integated wold maket (see Figue 3 o te stuctue o te model). We conside a simle two-eiod model. n eac eiod, Fim detemines te esouce ice ist. Ten, eac inal goods oduce cooses its outut. Final good oduces comete wit eac ote in a Counot asion in te inal goods maket, wile tey ae ice takes in te esouce maket. Fim invests in te exloation o mines, and tose mines ae eady o extaction wen it begins te oduction o inal goods in te second eiod.9 Howeve, it is assumed tat te amount o extaction om its own mines is smalle tan te amount it needs and, teeoe, it also ucases esouces om Fim. Futemoe, we do not conside te eects o 5 Ou analysis can be alied to vaious kinds o esouces as a as te degee o concentation o te usteam industy is ige tan tat o te downsteam industy. 6

8 uncetainty on exloation. Tus, an incease in investment in exloation imlies an incease in te acquisition o new mines. esouce-exoting County () Fim Mines A esouceimoting County ()? Fim = M inml good oduce Ote esouceimoting Counties Ote inml goods oduces Wold integmted mmket o inml good X Figue 3. Te stuctue o te model. Fim detemines te amount o investment in exloation beoe te ist eiod begins. Tis setting elects an imotant asect o mining investments: it is time consuming to comlete te exloation o new mines. We conside tat te investment amount is exogenous wen te esouce ice and oututs ae detemined in bot eiods. Te wold invese demand cuve o te inal goods in eac eiod is given by ( X ), P 0,, = P j x, j x j x = Te stuctue o wic is ixed toug bot eiods. 7 X j denotes te total outut o inal goods in eiod j. One unit o inal goods X is made om one unit o te esouce, and te

9 maginal cost o oducing te inal goods, excet o te esouce ocuement cost, is assumed to be zeo. Te oit o eac inal goods oduce i, excet o Fim, in eac eiod is given by: ( x, j, j ) xi, j i, j = wee x, j and j, denote te ices o outut and te esouce in eiod j (=, ), esectively. Moeove, x, denotes te outut o eac inal goods oduce (Fim i ) in i j eiod j. Fo Fim, te oits o bot eiods ae given by wee,, = = M, ( x,, ) x, ( ) x + M C ( M, ) x,,,, C, and denote te amount o extaction by Fim, te cost o te extaction, and te investment amount o te exloation/acquisition o mines, esectively. Te lage te investment is, te moe mines Fim owns in te second eiod. We assume tat C M > 0, C M > 0, C 0, C > 0, C M 0. Te objective o te inal goods oduces is to maximize tei own oits in eac eiod. Because tey ae ice takes in te esouce maket, and because none o tem ave any mines in te ist eiod, tey do not conside te eect o tei own oduction in te ist eiod on te esouce ice in te second eiod. We assume tat te cost o te esouce extacting activity o Fim is stock deendent. Teeoe, te maginal cost cuve sits uwad in te second eiod as comaed wit te ist eiod. Te lage te amount o te extaction in te ist eiod, te geate te sit is. n aticula, o te total extaction toug te two eiods ( ), te total cost is deined as: S () TC C ( + ), C > 0, C 0. = > Tus, te cost unction o eac eiod is given by: 8

10 ( ) C = C ( + ) C ( ) C, = C,, wee ( j =, ) denotes te amount o extaction in eiod j. Note tat is given at j te beginning o te second eiod. Te oit o Fim in eac eiod is given by:,, = =,, C C, ( ) ( + ) + C ( ),, n te second eiod, Fim cooses te esouce ice (, ) to maximize, contast to inal goods oduces, it consides te eect o its coice o esouce ice in te ist eiod on te situation in te second eiod. Teeoe, Fim cooses te esouce ice in te ist eiod to maximize te total oit:. n Π = π + δπ,, wee δ is te discount acto. Te govenment o county suots te acquisition o inteests o mines by subsidy and/o low-inteest loan. n tis cate, tis tye o suot is exogenous. We assume tat an incease in tis tye o suot encouages im to acquie mines. 3. Equilibium Pices and Extaction We solve te game by backwad induction, and te notion o equilibium is te subgame eect Nas equilibium (see Figue 4 o te stuctue o te game) Te Second Peiod Final goods oduces including Fim coose oututs to maximize tei own oits given te esouce ice, ;. Te ist-ode condition (FOC) o eac oduce is 6 n te tansactions in te eal wold, te selle and buye oten negotiate o te ice. Howeve, o simlicity, we assume tat only one esouce extaction im exists, and accodingly, we exclude te negotiation ocesses. 9

11 x i, i, = x, + P x, x i,, = 0 ().Te second-ode condition (SOC) is assumed to old globally. wee P = P ( ) x, x X st eiod Te ome govenment subsidizes te investment in exloation o mines by Fim. (Exogenous) Fim detemines te investment amount. (Exogenous) Fim cooses te esouce ice in te ist eiod. Final goods oduces coose tei own oututs (and te amounts o esouce inuts) nd eiod Figue. Te stuctue o te game. 0

12 Because inal goods oduces ae symmetic excet o te acquisition o mines, equilibium oututs ae te same. We deine te equilibium oututs: x = x ( ) ( ) X = X. Ten, te FOC (()) can be ewitten as P x, ( nx ) P ( nx ) x 0 + x, = Te ollowing stability condition is assumed to old globally: ( n + ) P + np x 0 x.teeoe, x 0 and X 0 old., x,,, Fim also extacts te esouce om mines it owns. Because Fim is a ice take in te esouce maket, te amount o extaction is detemined so tat te maginal extaction cost, is equal to te esouce ice:, = C M. Tus, we obtain te equilibium amount o extaction: M ( ),,.Note tat it ollows om te assumtion on te sae o C tat M > 0 and M 0. Te demand o te esouce extacted by Fim is given, > by ( ) X ( ) M ( ) D,,,,,, =. Fom te sae o te demand and suly cuves X, M ).it olds tat 0. Fim cooses te esouce ice in te second ( D,, eiod to maximize its oit (, ).Te FOC is,, = D, + D, ( C ) = 0,,, (3) Te SOC is assumed to be satisied:,, = D, D, C, +,,,,, D, ( C ) 0 Tus, we obtain te equilibium esouce ice and te suly o te esouce by Fim in te second eiod:, (, ), ( ) =. D,,, (4)

13 3. Te Fist Peiod Te detemination o te outut quantities o inal goods is te same as tat in te second eiod. On te ote and, because Fim as not yet comleted te acquisition o mines, it does not extact esouces itsel, and accodingly, X ( ) esouce ice in te ist eiod to maximize its total oit: =. Fim cooses te D,, Π = C (, ) + δ,, D,, D wee π, denotes te equilibium oit in te second eiod given. Using te enveloe teoem, te FOC is given by: dπ d, = D, + D, { ( ) C dc } = 0, d,, (5), t is assumed tat te inteio solution is obtained in eac eiod. Because 0, te assumtion o te inteio solution imlies tat ( ) 0, C, δc, > D,, δ necessaily olds in equilibium. ntuitively, te assumtion o inteio solution imlies tat te esouce is abundant in te mines owned by Fim, and accodingly, te maginal cost o extaction o Fim does not dastically incease. Moeove, te SOC is assumed to be satisied. Tus, we obtain te equilibium esouce ice and extaction amount in te ist eiod: ( ), ( ), =. D,, 4. Acquisition o New Mines and esouce Pices n tis section, we examine te eect o an incease in mines owned by Fim on te esouce ices in bot eiods. Tee ae two kinds o eects on esouce ices: te diect ice eect and te suly-siting eect. Te diect ice eect, wic is denoted by, is te eect o an incease in mines owned by Fim on te esouce ice in te,

14 second eiod given te esouce suly by Fim in te ist eiod ( ). Fom (), we obtain:, M M M = + C, (, C, ),,, (6) Moeove, om (4) and (6), we obtain, = M C,, C,, M, + + ( C ), ( C ),,, M,, (7) Because 0 and M > 0 old, we obtain te ollowing lemma., Lemma M > 0, 0 olds. Tis means tat an incease in te investment in,, new mines by Fim deceases te esouce ice in te second eiod toug te diect ice eect. M > 0 means tat, te geate amount o mines Fim owns, te geate is its, esonse to an incease in, by inceasing extaction. n ote wods, te ige te esouce ice oeed by Fim in te second eiod is, te geate te eect o an additional unit o investment on te incease in te extaction by Fim. Te sit o te suly cuve tat satisies tis inequality is sown in Figue 5. As te investment amount inceases, te demand o te esouce sulied by Fim becomes moe elastic, wic gives Fim an incentive to lowe te esouce ice in te second eiod. 3

15 , 0 M Fig.5. Te sit o te suly cuve by Fim wen M 0, > Now let us tun to te suly-siting eect. Obseving a cange in te investment amount by Fim and execting a cange in te second-eiod situation, Fim inceases o deceases te esouce suly in eac eiod. n ote wods, Fim sits te esouce suly om te ist (second) eiod to te second (ist) eiod to maximize its oit. Tis eect is given by, d, d wee denotes,. Contay to te diect ice eect, te suly-siting eect canges te esouce ices in bot te ist and second eiods. We obtain om (5) tat d d Π ~ d = C, d, d d, (8) wee 4

16 ~ d d =,, M (9) ~ d d denotes te eect o a cange in te investment by Fim on te demand o te esouce sulied by Fim given te esouce suly in te ist eiod ( ). Tus, te suly-siting eect can be ewitten as, d d, =, dc d, ~ d Π d, d (0) Fom (3) and te act tat 0, we obtain,,, = C,, > 0. () Fom (4) and (0), it olds tat 0. Moeove, 0 and C, > 0 old. Tus,, > te suly-siting eect deends on te sign o ~ d d. Lemma ~ d d 0 olds, an incease in te investment in new mines by Fim deceases te esouce ice in te ist eiod, and inceases te esouce ice in te second eiod ~ toug te suly-siting eect. On te ote and, d d 0 olds, an incease in te > investment in new mines by Fim inceases te esouce ice in te ist eiod, and deceases te esouce ice in te second eiod toug te suly-siting eect. Suose tat te diect ice eect is negative ( 0 ). Because 0, te,, ice decease in te second eiod inceases te demand o te esouce extacted by Fim given te amount o extaction o Fim (te ist tem in (9)). On te ote and, an 5

17 incease in investment by Fim inceases te esouce suly o Fim given te esouce ice, wic means tat te demand o te esouce extacted by Fim deceases (te second tem in (9)). Tus, ~ d d can be eite ositive o negative. Howeve, wen, > te diect eect is ositive ( 0 ),bot tems wok to decease te demand o te esouce extacted by Fim. n tis case, ~ d d is necessaily negative. Fom (7) and te act tat 0, te moe igly te demand o te esouce, sulied by Fim is convex ( ~ > 0 ), te moe likely it is tat d d 0 olds, > ((9)). t sould be noted tat even i te demand cuve o inal goods is concave, te demand o te esouce sulied by Fim can be convex because = X M. Moeove, even i ~ 0, d d 0 may old., > Fom Lemmas and, we obtain te eects o a cange in te investment in te exloation/acquisition o new mines by Fim on te esouce ices in bot eiods, wic deend on te diection and te size o bot te diect ice and te suly-siting eects. Fist, wen ~ M > 0 and d d 0 old, bot te diect ice and te suly, > siting eects decease te esouce ice in te second eiod, and te latte inceases it in te ist eiod. Poosition Suose tat ~ M > 0 and d d 0 old. Ten, an incease in te mines, > owned by Fim inceases te esouce ice in te ist eiod, and deceases it in te second eiod. 6

18 t is inteesting to conside te olicy imlication o tis esult. Suose tat te suot by te ome govenment o te investment by Fim inceases te amount o investment. n suc a case, te govenment's suot may induce an incease in te esent esouce ice. Next, let us ocus on te case in wic ~ M > 0 and d d 0. Fom Lemma,, te diect ice eect deceases te esouce ice in te second eiod, wile te sulysiting eect inceases (es. deceases) te esouce ice in te second (es. ist) eiod. As a as te esouce ice in te second eiod, bot eects conlict wit eac ote. Tus, deending on te sizes o bot eects, tee ae two ossible cases. Poosition. Suose tat ~ M > 0 and d d 0 old. te demand cuve, o inal goods is concave, an incease in te mines owned by Fim necessaily deceases te esouce ices bot in te ist and second eiods. On te ote and, i te demand cuve o inal goods is convex, an incease in te mines owned by Fim may incease te esouce ice in te second eiod. See Aendix o te oo. Te intuition is as ollows. Wen M > 0, an investment in te exloation o new mines by Fim makes te demand o te esouce extacted by Fim moe elastic. Tus, in tems o te diect ice eect, Fim as an incentive to decease te esouce ice in te second eiod, and accodingly, incease te suly in te second eiod. Howeve, as noted above, te suly-siting eect is assumed to wok to incease te esouce ice in te second eiod. Ten, wic eect dominates te ote deends on te sae o te demand cuve o inal goods. Wen te demand cuve o inal goods is concave,, becomes geate as te suly in te ist eiod inceases., On te ote and, wen te demand cuve o inal goods is convex,, becomes 7

19 smalle as te suly in te ist eiod inceases. Teeoe, Fim as less incentive to sit te esouce suly om te second to te ist eiods wen te demand cuve o inal goods is concave tan wen it is convex. Consequently, wen te demand cuve is concave, te diect ice eect necessaily dominates te suly-siting eect, weeas wen te demand cuve is convex, te suly-siting eect may dominate te diect ice eect. Let us now tun to te case wee M 0. Tis case is ossible wen consideing investments in esouces. Fo examle, conside te exloation o oil ields in a cetain aea. Te esouce extaction inceases given te esouce ice as te numbe o its/latoms inceases by investments. Howeve, because te oil eseve in a cetain aea is inite, an additional it/latom gives ise to negative extenalities in te extaction o existing its/latoms in te same aea. n suc a case, te maginal cost o extaction aidly inceases wen te stock becomes small. Tus, an additional investment may decease te maginal incease o extaction in esonse to an incease in te esouce ice. Tis tye o sit o a suly cuve is deicted in Figue 6. n tis case, it ollows om (6) tat a decease in te esouce ice in te second eiod is smalle wen M 0 tan wen M > 0. An incease in te investment may even incease te esouce, ice in te second eiod. Tis is because te demand o te esouce sulied by Fim becomes less elastic. n aticula, om (8) and (9), we obtain te ollowing oosition.,, Poosition 3. Suose tat M 0 olds. Ten, te diect ice eect is, >, ositive ( 0 ), an incease in te mines owned by Fim necessaily inceases te esouce ice in te second eiod, and deceases it in te ist eiod. 8

20 , 0 M Fig.6. Te sit o te suly cuve by Fim wen M 0, Bot te diect ice and suly-siting eects wok in te same diection wit esect to te ice in te second eiod. Te esouce suly by Fim in te second eiod deceases, wile tat in te ist eiod inceases. Note om (5) tat te necessay condition o 0 to old is M 0. And, tis inequality is seciic to te sit o, >, a esouce suly cuve as a esult o investment in exloation. Having examined te eects o an incease in mines owned by Fim on te esouce ices, we obtain imotant olicy imlications. Te suot by te govenment o a esouce-imoting county does not necessaily ave an eect on te esouce ice as intended, i te govenment aims to lowe te esouce ice. n some cases, te suot leads to an incease in te esent esouce ice, and in ote cases it may lead to an incease in te utue esouce ice. Te esults deend on te demand and cost stuctues. 9

21 5. Acquisition Policy and esouce Pices An Emiical Evidence n tis section, assuming Govenments acquisition olicy always encouage te inal good ims esouce acquisition beavio, we analyze te eects o te olicy on esouce ices by dynamic anel analysis. Pactically, we analyze te eects o te govenment olicy on cude oil ice in oil imoting counties. Modeling te eal oil ice is diicult in a way tat as Hamilton (009,. ) indicates, canges in te eal ice o oil ave istoically tended to be (i) emanent, (ii) diicult to edict, and (iii) govened by vey dieent egimes at dieent oints in time. Te oil ice cange aects te economy o seveal yeas, wic gives eedback to oil ice itsel. Heeby we stat wit te amewok o dynamic anel analysis. Basically, individualseciic-eects o te scala deendent vaiable ( it) seciies tat = α + x β + ε ( it) i it it () wee i =,, N denotes individuals, t =,, T denotes time, x it ae egessos, α i ae andom individual-seciic eects, and ε it is an idiosyncatic eo. 7 Wen we set te deendent vaiable ( it) as te oil ice, we sould note tat it deends in at on its values in evious eiods. To om an autoegessive model o ode k in ( it), we include (, it ), (, it k ) as egessos suc tat,, t = k+,, T (3) (,) it = γ (, it ) + + γk (, it k) + x itβ + αi+ εit wee α i is assumed to be a ixed eect ee. Te ossible easons o coelation in ovetime ae (i) tue state deendence (diect coelation toug ast ), (ii) obseved eteogeneity (toug obsevables x ), and (iii) unobseved eteogeneity (toug te timeinvaiant individual eect α i.) Wen lagged egessos ae intoduced, witin estimato is 7 See Cameon and Tivedi (009) o detailed exlanation. 0

22 inconsistent. We adot ist-dieence (FD) model wit aoiate lags o ( it) as instuments to obtain consistent aamete estimates. Te model is = , t = k+,, T (4) ( it) γ (, i t ) γk (, i t k ) x itβ εit and OLS estimato ee becomes inconsistent aamete because te egesso (, it ) = (, it ) (, it ) is coelated wit te eo it it i, t ε = ε ε, even i ε it ae seially uncoelated. As oosed by Andeson and Hsiao (98), we can use (, ), wic ae it uncoelated wit εit, as an instument o ( it, ). Alleno and Bond (99) oose tests o te key assumtion tat ε it ae seially uncoelated. Moeove, Aellano and Bove (995) and Blundell and Bond (998) suggest using additional moment conditions to obtain an estimato wit imoved ecision and bette inite-samle oeties. We use tis Aellano- Bove and Blundell-Bond estimato, setting te eal oil ice in eac oil-imoting county as deendent vaiables. 5. Data Among vaious esouces, we cose etoleum because te data constaint is elatively weak. Deendent vaiables ae calculated om te utues ice o West Texas ntemediates (WT). We deive eal WT (WT delated by U.S. consume ice index) using ucasing owe aity (PPP) and indexed to make te ices at yea 000 equal to 00. Anote candidate o te ice vaiable is te imot ice o etoleum. Te data o imot ices can be extacted easily. Howeve, we adot te eal ice o oil aced by eac county because we sould take into consideation domestic oduction o eac county. We selected ou exlanatoy vaiables, including one vaiable tat eesent te

23 govenments' natual esouce stategy. Since tee is no eect vaiable tat diectly stands o govenments' stategy, a oxy vaiable is set. Table Souce o Data eal ice o oil in eac county OilP_PPP it Oil oduction e caita in eac county OilPodc it Poxy o natual esouce stategy -- Militay exenditue e caita Milc it WT: EA Wold Oil Statistics 0, Cude oil, sot ice. CP o te U.S.: U.S. Bueau o Labo Statistics, U.S. Deatment o Labo. Consume Pice ndex--all Uban Consumes, U.S. All items, 98-84=00, - CUU0000SA0 downloaded om tt://data.bls.gov PPP: Alan Heston, obet Summes and Bettina Aten, Penn Wold Table Vesion 7., Cente o ntenational Comaisons o Poduction, ncome and Pices at te Univesity o Pennsylvania, July 0. Pucasing Powe Paity,. Poduction o oil: EA Wold Oil Statistics 0 Poulation: Penn Wold Table Vesion 7., Poulation, o Militay exenditue: Te SP Militay Exenditue Database, Militay exenditue by county in 00 constant US dollas, , tt://milexdata.sii.og. Poulation: Penn Wold Table Vesion 7., Poulation, o Wold oil demand WOilD t Stocks o oil in te United States OilS_US t nstumental Vaiables Numbe o atents PatT it eal GDP e caita Demand o oil and oil oducts: Wold Oil Statistics 0, Sum o eined oducts - etane, LPG, nata, moto gasoline, aviation gasoline, jet gasoline, jet keosene, gas/diesel oil, ote keosene, esidual uel oil, and ote oducts. DTOTOL. Demand ees to net deliveies (including einey uel, intenational maine bunkes and intenational aviation bunkes). Stocks:EA, U.S. Ending Stocks o Cude Oil (Million Baels) Patents: OECD Patent database downloaded om tt:// y/oecdatentdatabases.tm eal GDP e caita : PPP Conveted GDP Pe Caita (Laseyes), deived om gowt ates o consumtion,

24 gdl it govenment consumtion and investment, at 005 constant ices Te ist vaiable is te oxy, and it is eac county's militay exenditue (in 00 constant dollas) e caita. t closely elates to esouce nationalism, and also, te imotance o national deense inceases o eac county as it exloits and dills moe esouces, since esouces ae sometimes exloited aound national bode, suc as te Exclusive Economic Zone. 8 Te second vaiable is oil oduction e caita, OilPodc it. Due to te data constaint, te oduction includes natual gas liquids (NGL). Te tid is te woldwide oil and oil oduct demand, WOilD t, and te out is U.S. Stocks o Cude Oil, OilS_US t. We used numbe o atents seemingly elating to esouce industy, PatT it, and eal GDP e caita gdl it as instumental vaiables ote tan lagged deendent vaiables (Table ). Te "oil imoting county" is deined as te county tat net imot is ositive in te 90% o te yeas obseved. Among te 74 counties tat give oil ice data om 988 to 00, oil-imoting counties ae 4, but due to te lack o atent data, we make te estimation o 6 counties. Oil ice is known to ave seial coelations. To ceck tem, we tied OLS including te same indeendent vaiables used in dynamic anel estimation, excet o lagged indeendent vaiables, and meteed te det o te lag. Te esult in Table 3 sows tat elatively stong coelations exist in one to ou lags, and we decided to include om one to ou yeas lagged deendent vaiables in te equation. We omulate te equation wit lagged indeendent vaiables and oil oduction being 8 t is ossible tat militay exenditue eesents olitical instability. Howeve, in tems o nationalism, militay exenditue and exenditue o acquisition o oeign esouces can be consideed to ave common tend. Tus, we adot tis vaiable in tis estimation. 3

25 endogenous vaiables; and militay exenditue, wold oil demand and U.S. stock cange as exogenous vaiables. Eac county s oil demand tat could be one o te deteminants o eac county s oil ice teoetically, was actually coelated to te ice, and including it to te estimation only made te coeicient insigniicant. 4

26 Table Descitive Statistics o Data o All Oil moting Counties Vaiable Mean Std. Dev. Min Max lnoil_ppp oveall between witin lnwoild oveall between witin lnoilpodc oveall between witin D.lnOilUS oveall between.5e witin lnmilc oveall between witin lngdl oveall between witin lnpattc oveall between witin Obsevations N = 586 n = 5 T-ba =.487 N = 845 n = 4 T-ba =.9435 N = 07 n = 54 T-ba = N = 7 n = 4 T-ba =.9435 N = 98 n = 0 T-ba = N = 586 n = 5 T-ba =.487 N = 0 n = 65 T = Note: Vaiable x it is decomosed into between ( x i ) and witin (x it x i + x, te global mean x being added back in make esults comaable). Table 3 Seial Coelations in Estimating eal Oil Pice lag lag 0.88 lag lag lag lag

27 5. Estimation esult n ode to seize geneal eatue and to comae wit te dynamic anel estimatos, we esent te ooled OLS estimatos o (3) in Table 4. ln OilP _ PPP = γ ln OilP _ PPP + γ ln OilP _ PPP + γ ln OilP _ PPP + γ ln OilP _ PPP it, it, it, 3 it, 3 4 it, 4 + β ln Oil P odc + β ln Milc + β ln Milc + β lnwoild + β ln OilS _ US + ε it, it, 3 it, 4 t 5 t it t = 5,, T (3) Table 4 Pooled OLS Estimato Deendent vaiable: lnoilp_ppp lag Coeicient Standad E. z P> z [95% Con. nteval] lnoilp_ppp lnoilpodc lnmilc lnwoild lnoils_us (0-) Constant N=,408 =

28 Aellano-Bove and Blundell-Bond estimato is omulated as (4). Patents and GDP ae instumental vaiables and not diectly sown in (4). ln OilP _ PPP = γ ln OilP _ PPP + γ ln OilP _ PPP + γ ln OilP _ PPP + γ ln OilP _ PPP it, it, it, 3 it, 3 4 it, 4 + β Oil P odc + β Milc + β Milc + β WOild + β OilS US + ε ln it, ln it, 3 ln it, 4 ln t 5 ln _ t it t = 5,, T (4) n c cluste = j j j= Hee, obust cluste vaiance estimato V ( XX ' ) * u'* u* ( XX ' ), wee u = e * x (n c is total numbe o te cluste, and e i is te esidual) is sown in Table 5. j i i jcluste We conduct two tests to te esult above. One is to test tat te eo be seially uncoelated, named te Aellano-Bond test o zeo autocoelation in ist-dieenced eos. Wen ε it, is seially uncoelated, ε it, ae coelated only wit εit, coelated wit εit, j(j ). Te esult is sown in Table 6., and not Te ote is a test o oveidentiying estictions, wic ae also called Hansen s test, Sagan s test and Hansen-Sagan test. Wen > 0.05, we do not eject te null yotesis to ind tat te oveidentiying estiction is valid. n ou case, as sown in Table 7, we conclude tat te oveidentiying estiction is valid and te oulation moment conditions ae coect. Ou teoetical analysis in te evious sections concluded tat esouce imoting counties incease in esouce inteest and exloitation leads to tei esouce ice incease unde cetain conditions. Consideing militay exenditue solely as a oxy o te esouce stategy tat closely elates to te nationalism, we estimated te eect o te stategy cange on esouce ice. Domestic oduction may not be a good oxy because oeign comany can aise oduction witin te county, o domestic comany can exloit moe in oeign counties. 7

29 Table 5 Aellano-Bove and Blundell-Bond Estimato System dynamic anel-data estimation (Two ste esults) Numbe o obs =,045 Numbe o gous = 6 Obs e gou: min = 6 avg = max = 8 Numbe o instuments = 77 Wald ci (9) = Pob > ci = Deendent vaiable: lnoilp_ppp WC-obust lag Coeicient Standad E. z P> z [95% Con. nteval] lnoilp_ppp lnoilpodc lnmilc lnwoild lnoils_us (0-) Constant nstuments o dieenced equation GMM-tye: L(/).lnOilP_PPP Standad: D.lnOilPodc LD.lnOilPodc D.lnMilc LD.lnMilc D.lnOilS_US nstuments o level equation GMM-tye: LD.lnOilP_PPP Standad: _cons D.lnWOilD lngdl L.lngdl lnpattc L.lnPatTc 8

30 Table 6 Aellano-Bond Test o Zeo Autocoelation in Fist-Dieenced Eos H0: No autocoelation Ode z Pob > z Table 7 Sagan Test o Oveidentiying estictions χ (67) = Pob > χ = Te esult tells us tat ecentage oint () ise in militay exenditue om a yea ago to tis yea leads to 0.5 s incease in te oil ice, weeas ise in te exenditue om two yeas ago to a yea ago let te ice 0. s. One t ise in militay exenditue o two consecutive yeas leads to 0.06 t decline in te ice. Teeoe, we ind tat incease in militay exenditue, i.e., stengtening o esouce stategy aise te domestic oil ice in te ist yea, but lowe it in te second yea. Tis suots ou Poosition, and te assumtions tee ae geneal o imoting counties. To conim i te dynamic anel esult alies well to Jaan, we lot in Figue 7 actual Jaanese domestic oil ice and estimated ice. Tese two lines ae not diveted muc, and te esult in Poosition could be alied to Jaan. 9

31 Figue 7 Jaan s actual oil ice and ediction lnoilp_ppp (Jaan) Pediction 6. Conclusion Tis ae examined te eect o acquisition o mines by inal goods oduces located in esouce imoting counties on te esent and utue esouce ices. We investigated te ice canges bot teoetically and emiically. Teoetically, we ound tat an incease in acquisition o mines may incease te esouce ice in eite te esent o utue eiod. Stategic beavio o te esouce extaction im, demand stuctue o inal goods, and te extaction costs o inal goods oduces lay key oles in detemining te ice cange. Ou emiical esult suots one o ou teoetical esults: an incease in acquisition o mines inceases te esent oil ice and deceases te utue oil ice. n tems o olicy imlication, i te degee o ice decease in te second eiod is lage, te olicy wic suots te acquisition activities o ims located in te domestic county is justiied, because consume sulus inceases suiciently in te long un. te data wic diectly eesent te govenment s acquisition stategy is ceated, te ice vaiation is estimated moe ecisely. 30

32 3 Aendix. Poo o Poosition Fom (4), it is obtained tat ( ) ( ) ( ) ( ) + + = Π,,,,,,,, C C C C d d d d d d (A.) Moeove, om (7), te suly siting eect in (8) can be ewitten as ollows. Λ M C,,,,,, δ (A.) Moeove, om (5) and (9), it is obtained tat ( ),,,,,,,,, M C M C M M C M + = (A.3) Teeoe, wen 0, > M, it olds tat 0,, M Tus, i 0 d d,,,,,,, 0 M + (A.4) Holds. Fom (A.)toug (A.4), i 0, 0, > M, and 0 d d old, te absolute value o (A.) is smalle tan tat o te diect ice eect (, ). On te ote and, i 0 >, Λ M C,,,,, δ may be geate tan one. Tus, te suly siting eect may be geate tan te diect ice eect. eeences Aellano, M., and S. Bond (99) Some tests o seciication o anel data: Monte Cao

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