Mahdavi: Extortion in the Oil States – Nationalization, Regulatory Structure, and Corruption


Does oil breed corruption? If so, what explains corruption in oil-producing countries? Despite a long tradition of scholarly research on the causes of corruption, doubts exist on whether and why oil wealth increases corruption in some states but not others. What makes these questions particularly difficult to answer is the lack of data refined enough to make inferences about the specific mechanisms linking oil and corruption. To this end, I introduce new and sector-specific measures of corruption that capture corrupt practices involving high-level government officials, cases which are often labeled as examples of “grand corruption” (Rose-Ackerman, 1975). These measures are drawn from U.S. government data on violations of the Foreign Corrupt Practices Act (FCPA) in 39 oil-producing countries during the period 1997-2013. Second, using the Department of Justice and Securities and Exchange Commission archives on FCPA violations, I am able to reveal dramatic differences in the levels of corruption across oil-producing countries in a way that is both specific to the oil sector and cross-nationally comparable. Third, I show that this variance is in large part associated with a specific institutional choice. Drawing on a novel collection of data on oil nationalizations around the world, I find the highest corruption levels in oil-producing countries with regulatory structures where the authority to solicit and award concessions is vested in national oil companies (NOCs) instead of in ministries or other regulatory agencies. This pattern is illustrative of corruption arising in contexts where officials have both the opportunities to engage in bad government behavior and the incentives to solicit bribes from would-be contract winners.

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Department of Political Science, University of California,