Oil price effects on optimal extraction–exploration and offshore entities: an applied-theoretical and empirical investigation in oil-rich economies

Deku, S ORCID: https://orcid.org/0000-0003-1579-8708 and Lim, KY, 2024. Oil price effects on optimal extraction–exploration and offshore entities: an applied-theoretical and empirical investigation in oil-rich economies. Energy Economics, 129: 107263. ISSN 0140-9883

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Abstract

We present a novel open-economy endogenous growth framework that integrates an optimal extraction-to-exploration (“extraction rate”) problem and a principal–agent style offshore investment and appropriation choice problem. Using a combination of applied-theoretical simulation and econometric analyses, we investigate the nexus between oil price and the extraction rate, as well as the relationship between extraction rate and offshore appropriation, focusing on offshore entities in tax havens associated with 31 oil-rich economies from 1979 to 2020. Consistent with recent literature and aggregate evidence, our benchmark simulation results find the first nexus to be negative, but positive if we impose a decreasing return to exploration specification. Regarding the second nexus, except for economies with large initial net foreign asset (NFA) positions, we find a positive association between offshore inactivation and the extraction rate. We also present empirical evidence to corroborate the benchmark results (with constant returns to exploration): a negative association between oil prices and extraction rates, which is further associated with a lower number of offshore entities.

Item Type:	Journal article
Publication Title:	Energy Economics
Creators:	Deku, S. and Lim, K.Y.
Publisher:	Elsevier
Date:	January 2024
Volume:	129
ISSN:	0140-9883
Identifiers:	Number Type 10.1016/j.eneco.2023.107263 DOI S0140988323007612 Publisher Item Identifier 1851148 Other
Rights:	This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/bync/4.0/).
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	15 Jan 2024 11:16
Last Modified:	15 Jan 2024 11:16
URI:	https://irep.ntu.ac.uk/id/eprint/50686

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