Natural Resources, Democracy and Corruption

Sambit Bhattacharyya and Roland Hodler

No 1047, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that natural resources lead to an increase in corruption if the quality of the democratic institutions is relatively poor, but not otherwise. We use panel data covering the period 1980 to 2004 and 99 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource abundance and corruption depends on the quality of the democratic institutions. In particular, resource abundance is positively associated with corruption only in countries that have endured a nondemocratic regime for more than 60 percent of the years since 1956. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust to various alternative measures of natural resources, corruption and the quality of the democratic institutions. These findings imply that democratization can be a powerful tool to reduce corruption in resource-rich countries.

Keywords: Natural resources; democracy; political institutions; corruption (search for similar items in EconPapers)
JEL-codes: D7 O1 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008
New Economics Papers: this item is included in nep-cdm, nep-env and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Natural resources, democracy and corruption (2010)
Working Paper: Natural Resources, Democracy and Corruption (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1047

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