Corruption and FDI in natural resources: The role of economic downturn and crises

Manuel David Cruz, Chandan Jha, Fatih Kırşanlı and Ashish Kumar Sedai

Economic Modelling, 2023, vol. 119, issue C

Abstract: This study adds to largely non-existent literature on corruption and foreign direct investment (FDI) in natural resources by examining the association between the two using a panel of 20 Latin American and Caribbean countries from 1995 to 2020. We find that higher levels of corruption are associated with lower levels of FDI in natural resources, supporting the “grabbing hand” or “sand-the-wheel” hypothesis. Further, we argue that during economic downturns and crises, corrupt agents are likely to use the prevalence of corruption to disregard laws to attract greater FDI in natural resources to compensate for the adversity brought about by hard times. Consistently, we find that while still detrimental to resource FDI, corruption's diminishing effects on resource FDI are much less pronounced during economic downturns and fiscal crises, with the latter measured by credit events leading to a reduction in the present value of the sovereign debt.

Keywords: Foreign direct investment; Corruption; Economic downturn; Sovereign debt; Fiscal crisis; Natural resources (search for similar items in EconPapers)
JEL-codes: D73 E02 E6 F21 F23 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003595

DOI: 10.1016/j.econmod.2022.106122

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