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Corruption and Economic Development in Energy-rich Economies

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Abstract

We empirically model the causes of corruption and test the economic development–corruption link in energy-rich economies, using data from 48 countries with energy resources. The results indicate that energy abundance may not necessarily hurt economic development in energy-rich countries, allowing enterprises to conduct business more effectively to reduce corruption, establishing a better political (democratic) regime improves corruption rankings, and finally while corruption reduces both the level of GDP per capita and its growth rate, economic development decreases corruption.

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Notes

  1. This paper was presented at the ACES annual conference in New Orleans on 4 January 2008. We are grateful to participants for their useful comments, especially the discussant of our paper. In addition, we were greatly assisted by comments and helpful suggestions from Josef Brada and the anonymous referees. All remaining errors are our own.

  2. Some related studies include Gylfason (2001), Knack and Keefer (1995), Murshed (2004), Rodriguez and Sachs (1999), Sachs and Warner (2001), Torvik (2002), Wick and Bulte (2006).

  3. Iraq was an outlier (only 2 years of GDP growth data) so it was not included.

  4. We scale the reserves down by GDP per capita to control for size. The results are robust even when we use non-scaled data.

  5. The correlation matrix of the variables at hand is not too problematic, so that multicollinearity is not an issue.

  6. A referee also suggested that we also divided the sample countries into developing and developed. However, the correlation between this and the dummy variable for the presence of a national oil company was 0.99. As a result, we only used the latter in the paper.

  7. The dummy variable for the presence of a state oil ownership was insignificant in the regressions, suggesting that corruption is not sensitive to a particular ownership (state versus private) for energy. Hence, one could extend the same conclusion to the development dummy due to the high correlation between the two dummy variables.

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Author information

Authors and Affiliations

  1. The Centre for Euro-Asian Studies, The University of Reading, Whiteknights, PO Box 218, Reading, RG6 6AA, UK

    Yelena Kalyuzhnova

  2. Department of Economics and Finance, Southern Illinois University, Edwardsville, 62026-1102, Il, USA

    Ali M Kutan

  3. Department of Economics, Bilkent University, Ankara, Turkey

    Taner Yigit

Authors
  1. Yelena Kalyuzhnova
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  2. Ali M Kutan
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  3. Taner Yigit
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Appendix

Appendix

DATA DESCRIPTION

In this Appendix, we describe the variables which we used in the presented regressions.

COR::

Corruption Rank. Source: Transparency International, http://www.transparency.org/policy_research/surveys_indices/cpi, accessed 22 May 2007.

Energy-specific variables

BARREL::

Oil production scaled by GDP per capita. Source: BP Statistical Review (2006).

GAS::

Natural Gas production scaled by GDP per capita. Source: BP Statistical Review (2006).

ORES::

Oil reserves scaled by GDP per capita. Source: BP Statistical Review (2006).

GRES::

Natural Gas reserves scaled by GDP per capita. Source: BP Statistical Review (2006).

STATE::

Dummy variable that is equal to one for the countries which have state national oil company and equal to zero otherwise.

PRIMX::

Primary exports (percentage of merchandise exports). Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

OILPR::

Dummy variable for proved oil reserves – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions (equals 1 when oil reserves >0.2% of world total reserves and 0 otherwise).

Control variables

OPEN::

Openness – the sum of merchandise exports and imports divided by the value of GDP, in % (all in current US$) Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

GDPPC::

GDP per capita. Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

GDPPCG::

GDP per capita growth. Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

DEMOCRACY::

Democracy index – The Economist Intelligence Unit's democracy index is based on five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. Source: Laza Kekic, The Economist Intelligence Unit's Index of Democracy, Economist Intelligence Unit 2006, http://www.economist.com/media/pdf/DEMOCRACY_INDEX_2007_v3.pdf, accessed 18 May 2007.

GOVERNMENT::

General government final consumption expenditure as percentage of GDP. Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

ECONFR::

Economic freedom – ranking based on economic theory and empirical study. It identifies the variables that comprise economic freedom and analyses the interaction of freedom with wealth. Source: The Heritage Foundation, Index of Economic Freedom 2007, http://www.heritage.org/research/features/index/countries.cfm?sortby=country.

BUSINESS::

Ease of doing business index is calculated as the ranking on the simple average of country percentile rankings on each of the 10 topics covered in WB ‘Doing business’ database. Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

EXDEBT::

External debt – debt in US$. Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

FDI::

Foreign Direct Investment Net Inflows (percentage of GDP). Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

ROAD::

Roads, paved (percentage of total roads). Source: The World Bank, http://publications.worldbank.org/subscriptions/WDI/old-default.htm, accessed 18 May 2007.

EDUCATION::

Initial schooling enrolment secondary % to gross. Source: World Development Indicators, http://publications.worldbank.org/WDI/.

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Kalyuzhnova, Y., Kutan, A. & Yigit, T. Corruption and Economic Development in Energy-rich Economies. Comp Econ Stud 51, 165–180 (2009). https://doi.org/10.1057/ces.2008.46

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