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Corruption as a Local Advantage: Evidence from the Indigenization of Nigerian Oil

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  • Jonah M. Rexer

Abstract

Multinationals in the extractive sectors of weak states face resource theft by armed groups. Criminality is often abetted by state corruption, even though firms are willing to pay for protection. I study indigenization in Nigeria's oil sector, which increased local firms' participation substantially. Despite lower quality, local firms increase output by reducing oil theft. A bargaining model illustrates that political connections align law enforcement incentives, solving commitment problems. Data on law enforcement raids show that local firms receive preferential protection. Connections to military elites drive the local advantage. The aggregate gains from indigenization are at most between 2.3 and 5.7 percent of GDP.

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  • Jonah M. Rexer, 2025. "Corruption as a Local Advantage: Evidence from the Indigenization of Nigerian Oil," American Economic Review, American Economic Association, vol. 115(3), pages 1019-1057, March.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:3:p:1019-57
    DOI: 10.1257/aer.20220528
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    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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