The role of corruption in the oil price-growth relationship: Insights from oil-rich economies
Abstract
This study examines whether the effect of oil prices on economic growth is influenced by the level of corruption. I focus on 30 oil-rich economies and employ dynamic heterogeneous panel estimation techniques to address the issue of cross-sectional dependence. Evidence from the study reveals that the impact of oil prices on growth varies with corruption levels. Specifically, the marginal effect of oil prices on growth is positive at low levels of corruption but hampers immediate and long-term growth at high levels of corruption. Essentially, the results indicate that a simultaneous increase in oil prices and corruption impairs growth, whereas increase in oil prices coupled with a reduction in corruption benefits the economy more. Using a disaggregated sample of countries based on their corruption levels, the results suggest that the adverse effect of simultaneous increases in oil prices and corruption is more pronounced in oil-rich countries with higher levels of corruption compared to those with lower levels. The study implies that the level of corruption is a crucial factor in how changes in oil prices impact long-term growth in oil-rich economies. Therefore, for sustainable long-term economic growth, an increase in oil prices must be accompanied by a significant reduction in corruption.
David, J. (2024, in press). "The role of corruption in the oil price-growth relationship: Insights from oil-rich economies" Economic Change and Restructuring. Forthcoming