IDEAS home Printed from https://ideas.repec.org/p/fem/femwpa/2013.06.html
   My bibliography  Save this paper

Corruption and the Curse: The Dictator’s Choice

Author

Listed:
  • Mare Sarr

    (School of Economics, University of Cape Town)

  • Tim Swanson

    (Department of Economics, Graduate Institute of International and Development Studies)

Abstract

We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the exploitation of a resource-rich country. This dictator makes the recursive choice between either investing domestically to live off the productivity of the country while facing the risk of being ousted, or looting the country’s riches by liquefying the resources and departing. We demonstrate that important parameters determining this choice include the level of resources, liquidity and indebtedness. We find that the dictator’s choice regarding the timing of departure is significantly related to external lending, investment and debt. We then argue that this looting phenomenon provides an explanation for the generation of corrupt economies in resource-rich countries. An empirical analysis of available corruption indices suggests that instability-led looting provides a more fundamental explanation of perceived corruption than do various social and cultural indicators or the economic theory of internal political competition.

Suggested Citation

  • Mare Sarr & Tim Swanson, 2013. "Corruption and the Curse: The Dictator’s Choice," Working Papers 2013.06, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2013.06
    as

    Download full text from publisher

    File URL: https://feem-media.s3.eu-central-1.amazonaws.com/wp-content/uploads/NDL2013-006.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    2. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    3. Daniel Lederman & William F. Maloney, 2007. "Natural Resources : Neither Curse nor Destiny," World Bank Publications - Books, The World Bank Group, number 7183.
      • Venables, Anthony J. & Maloney, William & Kokko, Ari & Bravo Ortega, Claudio & Lederman, Daniel & Rigobón, Roberto & De Gregorio, José & Czelusta, Jesse & Jayasuriya, Shamila A. & Blomström, Magnus & , 2007. "Natural Resources: Neither Curse nor Destiny," IDB Publications (Books), Inter-American Development Bank, number 350, November.
    4. Robin Mason & Timothy Swanson, 1996. "Long-term Liability and the Choice of Liquidation*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 21(2), pages 204-223, April.
    5. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2007. "Governance Matters VI: Aggregate and Individual Governance Indicators, 1996-2006," Policy Research Working Paper Series 4280, The World Bank.
    6. Mare Sarr & Erwin Bulte & Chris Meissner & Tim Swanson, 2011. "On the looting of nations," Public Choice, Springer, vol. 148(3), pages 353-380, September.
    7. Daron Acemoglu & James A. Robinson & Thierry Verdier, 2004. "Alfred Marshall Lecture: Kleptocracy and Divide-and-Rule: A Model of Personal Rule," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 162-192, 04/05.
    8. Kolstad, Ivar & Søreide, Tina, 2009. "Corruption in natural resource management: Implications for policy makers," Resources Policy, Elsevier, vol. 34(4), pages 214-226, December.
    9. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2006. "Political foundations of the resource curse," Journal of Development Economics, Elsevier, vol. 79(2), pages 447-468, April.
    10. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    11. Jody Overland & Kenneth Simons & Michael Spagat, 2005. "Political instability and growth in dictatorships," Public Choice, Springer, vol. 125(3), pages 445-470, December.
    12. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    13. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    14. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    15. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    16. Paul Collier & Anke Hoeffler, 2004. "Greed and grievance in civil war," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 563-595, October.
    17. Seema Jayachandran & Michael Kremer, 2006. "Odious Debt," American Economic Review, American Economic Association, vol. 96(1), pages 82-92, March.
    18. Danila Serra, 2006. "Empirical determinants of corruption: A sensitivity analysis," Public Choice, Springer, vol. 126(1), pages 225-256, January.
    19. Paldam, Martin, 2002. "The cross-country pattern of corruption: economics, culture and the seesaw dynamics," European Journal of Political Economy, Elsevier, vol. 18(2), pages 215-240, June.
    20. repec:dau:papers:123456789/4352 is not listed on IDEAS
    21. Razafindrakoto, Mireille & Roubaud, François, 2010. "Are International Databases on Corruption Reliable? A Comparison of Expert Opinion Surveys and Household Surveys in Sub-Saharan Africa," World Development, Elsevier, vol. 38(8), pages 1057-1069, August.
    22. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," The World Bank Economic Review, World Bank, vol. 19(2), pages 141-174.
    23. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(2), pages 289-309.
    24. Blackburn, Keith & Bose, Niloy & Emranul Haque, M., 2006. "The incidence and persistence of corruption in economic development," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2447-2467, December.
    25. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
    26. Rose-Ackerman, Susan, 2002. ""Grand" corruption and the ethics of global business," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1889-1918, September.
    27. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    28. Kunibert Raffer & H. W. Singer, 2001. "The Economic North–South Divide," Books, Edward Elgar Publishing, number 1835.
    29. Azam, Jean-Paul, 1995. "How to Pay for the Peace? A Theoretical Framework with References to African Countries," Public Choice, Springer, vol. 83(1-2), pages 173-184, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mare Sarr & Timothy Swanson & Chiara Ravetti & Siri Wingaard, 2012. "Aiding and Abetting the Looting of Nations: The impact of Aid on growth in Autocracies," CIES Research Paper series 15-2012, Centre for International Environmental Studies, The Graduate Institute.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mare Sarr & Erwin Bulte & Chris Meissner & Tim Swanson, 2011. "On the looting of nations," Public Choice, Springer, vol. 148(3), pages 353-380, September.
    2. Mare Sarr & Timothy Swanson & Chiara Ravetti & Siri Wingaard, 2012. "Aiding and Abetting the Looting of Nations: The impact of Aid on growth in Autocracies," CIES Research Paper series 15-2012, Centre for International Environmental Studies, The Graduate Institute.
    3. Jeffrey Frankel, 2012. "The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions," Growth Lab Working Papers 36, Harvard's Growth Lab.
    4. Bhattacharyya, Sambit & Hodler, Roland, 2010. "Natural resources, democracy and corruption," European Economic Review, Elsevier, vol. 54(4), pages 608-621, May.
    5. Stela Cani, 2009. "Resource Abundance, Mineral Funds and Institutional Quality," Economics Discussion Papers em-dp2009-04, Department of Economics, University of Reading.
    6. Brunnschweiler, Christa N. & Bulte, Erwin H., 2008. "The resource curse revisited and revised: A tale of paradoxes and red herrings," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 248-264, May.
    7. Adrian Boos & Karin Holm‐Müller, 2012. "A theoretical overview of the relationship between the resource curse and genuine savings as an indicator for “weak” sustainability," Natural Resources Forum, Blackwell Publishing, vol. 36(3), pages 145-159, August.
    8. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    9. Brunnschweiler, Christa N., 2008. "Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth," World Development, Elsevier, vol. 36(3), pages 399-419, March.
    10. repec:hhs:bofitp:2009_005 is not listed on IDEAS
    11. Dreher, Axel & Kotsogiannis, Christos & McCorriston, Steve, 2007. "Corruption around the world: Evidence from a structural model," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 443-466, September.
    12. Goel, Rajeev K. & Korhonen, Iikka, 2011. "Exports and cross-national corruption: A disaggregated examination," Economic Systems, Elsevier, vol. 35(1), pages 109-124, March.
    13. Ruba Aljarallah, 2021. "An Analysis of the Impact of Rents from Non-renewable Natural Resources and Changes in Human Capital on Institutional Quality: A Case Study of Kuwait," International Journal of Energy Economics and Policy, Econjournals, vol. 11(5), pages 224-234.
    14. Ravetti, Chiara & Sarr, Mare & Swanson, Tim, 2018. "Foreign aid and political instability in resource-rich countries," Resources Policy, Elsevier, vol. 58(C), pages 277-294.
    15. Ruba A. Aljarallah & Andrew Angus, 2020. "Dilemma of Natural Resource Abundance: A Case Study of Kuwait," SAGE Open, , vol. 10(1), pages 21582440198, January.
    16. Matthias Busse & Steffen Gröning, 2013. "The resource curse revisited: governance and natural resources," Public Choice, Springer, vol. 154(1), pages 1-20, January.
    17. Dauvin, Magali & Guerreiro, David, 2017. "The Paradox of Plenty: A Meta-Analysis," World Development, Elsevier, vol. 94(C), pages 212-231.
    18. Kaznacheev, Peter, 2013. "Resource Rents and Economic Growth: Economic and institutional development in countries with a high share of income from the sale of natural resources. Analysis and recommendations based on internatio," EconStor Research Reports 121950, ZBW - Leibniz Information Centre for Economics.
    19. Goel, Rajeev K. & Korhonen, Iikka, 2011. "Exports and cross-national corruption: A disaggregated examination," Economic Systems, Elsevier, vol. 35(1), pages 109-124, March.
    20. Dong-Hyeon Kim & Shu-Chin Lin, 2017. "Natural Resources and Economic Development: New Panel Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(2), pages 363-391, February.
    21. You, Jong-Sung & Khagram, Sanjeev, 2004. "Inequality and Corruption," Working Paper Series rwp04-001, Harvard University, John F. Kennedy School of Government.

    More about this item

    Keywords

    Corruption; Dictatorship; Lending and Indebtedness; Looting; Natural Resource Curse;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2013.06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alberto Prina Cerai (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.