Resources Science ›› 2020, Vol. 42 ›› Issue (2): 251-261.doi: 10.18402/resci.2020.02.05

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Corruption in the exploitation of natural resources and effect of institution

ZHAO Weiwei, BAI Yongxiu   

  1. School of Economics and Management, Northwest University, Xi’an 710127, China
  • Received:2019-07-15 Revised:2020-01-11 Online:2020-02-25 Published:2020-04-25

Abstract:

In this study, the relationship between natural resources and corruption is theoretically deduced and tested empirically with provincial data in China. Theoretical analysis shows that the particularities of natural resources and the inevitable resource benefits are the starting point of corruption in resource-rich regions, but corruption can only be caused by imperfect resource benefits management institutions and existence of discretion in natural resource management system. The specific mechanism is particularities-resource income-lack of benefits distribution mechanism-excess profits-economic rent-seeking-political rent-seeking-discretion-corruption. The empirical test quantifies the relationship between resource mining, institution quality, and corruption with 1998-2017 provincial average annual cross-sectional data and short panel data divided according to the political cycle. The results show three implications. Firstly natural resources development does not lead to corruption directly because the impact of resource development on corruption is small and insignificant. With the interaction terms of resources development and institution quality, the impact of resource development has become significant, but the direction is uncertain. That is there is a threshold for institution quality. If taking the average value of insitution quality of Chinese provinces from 1998 to 2017, the coefficients were significantly. As long as institution quality of regions are above the threshold, “resource corruption” in resource-rich regions can be avoided. In addition, institution quality is not a transmission channel of the resource curse. that is, the development of resources has not reduced institution quality and “cursed” regional development. Therefore, the key of corruption elimination in resource-rich regions is innovation and improvement of resource-related institutions.

Key words: natural resources, corruption, mechanism, institution quality, China