Crude oil price and government effectiveness: The determinants of corruption in oil abundant states

• Published date: 01 December 2022
• Author: Johnson Clement Madathil,Velmurugan Palaniyappa Shanmugam,Ashitha Thippillikat
• Date: 01 December 2022
• DOI: http://doi.org/10.1002/pa.2767

RESEARCH ARTICLE

Crude oil price and government effectiveness: The

determinants of corruption in oil abundant states

Johnson Clement Madathil

1

| Velmurugan Palaniyappa Shanmugam

2

|

Ashitha Thippillikat

3

1

School of Management Studies, National

Institute of Technology Calicut, Kozhikode,

Kerala, India

2

Department of Commerce and Management,

Central University of Tamil Nadu, Tiruvarur,

Tamil Nadu, India

3

Department of Commerce, University of

Calicut, Kozhikode, Kerala, India

Correspondence

Johnson Clement Madathil, School of

Management Studies, National Institute of

Technology Calicut, Kozhikode, Kerala

673601, India.

Email: johnson_p190158ms@nitc.ac.in

This research investigates the impact of crude oil price and government effectiveness

on control of corruption measures in the oil abundant countries. By using a panel

dataset of 18 oil-producing countries from 2002 to 2017, and panel data regressions,

the paper finds that crude oil price and government effectiveness can significantly

decrease corruption in the oil-producing countries. Besides, the findings show that

crude oil prices with weaker governments can significantly increase corruption in oil-

producing countries. The results imply that crude oil prices with the institutions that

control private investments, public funds, and public employment can significantly

determine corruption in the oil abundant countries. In addition, the findings also sub-

stantiate rent-seeking and patronage behaviors in the governments of oil abundant

countries. The findings suggest that oil abundant countries must move further from

rent-seeking and patronage motives by promoting private investments in the non-oil

sectors, and create independent public services to reduce corruption. The paper sug-

gests that the reforms should be pressured from international communities and

policymakers to reduce corruption in oil abundant states.

KEYWORDS

crude oil, patronage, rent-seeking, resource abundance, resource-curse theory

1|INTRODUCTION

A common phenomenon observed in the oil abundant states is the

negative associatio n between economic growth and resource wealth

(Sachs & Warner, 1995). The negative associat ion between eco-

nomic growth and resource wealth in the oil abundant countries is

termed as resource-cu rse (Sachs & Warner, 1995). Nonetheless, this

phenomenon was not major ly caused by higher resource wealth, but

indeed it has been tagged to corruption practices (Ross, 1999).

Corruption scandals in t he oil sector are seen in almo st every oil

abundant country. The recent BP oil disaster in the Gulf of Mexico

can be seen in this regard. Th e BP oil disaster was the United States'

largest environmental disaster until this time, and the root cause

of this accident is trac ed to corruption and c orporate power

(Ladd, 2012). Consequently, it is argued that natural resource abun-

dance can create corrupti on in any state.

However, not all oil-producing countries are alike. Some countries

are positively affected by resource abundance of oil, for example,

Norway and the Netherlands (Holden, 2013). And, some countries are

adversely affected by resource abundance of oil, for example, Nigeria

and Angola (Eregha & Mesagan, 2020). It is argued that resource

abundance of oil often creates interstate war, civil conflicts, rent-seek-

ing, and are more characterized by corruption and poor governance

(Karl, 2004). Nevertheless, there is a lack of empirical evidence to sug-

gest that crude oil prices and inefficient governments enhance corrup-

tion in resource abundance countries. Thus, this research aims to

answer the question, do higher crude oil prices increase corruption in

oil producing states, and does having weaker governments enhance

this affect?

A review of past research shows that the majority of the works

on corruption in the oil sector were concentrated on understanding

the role of resource wealth on transparency, accountability, and

Received: 27 October 2020 Revised: 21 September 2021 Accepted: 23 September 2021

DOI: 10.1002/pa.2767

J Public Affairs. 2022;22(Suppl. 1):e2767. wileyonlinelibrary.com/journal/pa © 2021 John Wiley & Sons Ltd. 1of8

https://doi.org/10.1002/pa.2767