Booms, busts and bribes: the corrupting influence of commodity price shocks

This paper revisits the resource curse hypothesis by documenting the effects of exogenous commodity price shocks on corruption in resource-rich countries. While existing studies largely focus on the role of resource abundance, resource discoveries, and institutional quality, we emphasize the importance of unanticipated commodity variations and examine how such shocks affect corruption. We address this question in two ways. First, we developed a simple analytical model to illustrate how shocks to commodity prices influence incentives for corruption. Second, we empirically examine the relationship between commodity price shocks and corruption using panel data from 51 commodity-dependent countries over the period 1985–2022. Our analysis combines corruption indicators from the International Country Risk Guide (ICRG) and the World Bank’s Governance Indicators with commodity price data from the World Bank’s Pink Sheet to empirically gauge the effects. The results show that positive commodity price shocks are associated with statistically significant increases in corruption. This finding holds for both symmetric and asymmetric price shocks. The results further indicate that the magnitude of these effects differs across resource types, highlighting heterogeneity in the corruption response to commodity price movements.