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Oil Wealth, Politics, and Corruption

January 31, 2022

Does oil corrupt? Alex James and Nathaly Rivera test this theory in a new paper on oil, politics and corruption published in the Journal of Environmental Economics and Management. James is associate professor of economics at UAA’s College of Business and Public Policy (CBPP). Rivera is a Research Fellow in the Department of Economics at the University of São Paulo in Brazil, and former post doctoral fellow in the UAA Economics Department.

James and Rivera used forty years of U.S. state-level data to measure corruption as both convictions of corruption and the frequency that words like “corrupt,” “fraud,” and “bribe” appear in newspapers. They found that oil-rich U.S. states experience more corruption than their oil-poor counterparts, but only during periods of high oil prices, suggesting a causal relationship.

James and Rivera’s work fits into a sizable literature that explores the various causes of corruption within the U.S., but they are the first (to their knowledge) to provide causal evidence of the relationship between oil and political corruption in the United States.

“Oil wealth plays a profound yet indirect role in shaping economic outcomes and public policy in the United States,” they wrote. “Policy makers and constituents of oil-rich states should anticipate the corrupting influence of oil and implement policies to strengthen political institutions accordingly.”

“Natural resources provide a host of benefits, and there are things government can do to maximize these benefits,” James said. “Taxing potential voters so that they demand accountability, representation, and good governance is one of them.”

Read the full paper here.