Corruption and FDI in Natural Resources: The Role of Economic Downturn and Crises

28 Pages Posted: 12 Dec 2022

See all articles by Manuel David Cruz

Manuel David Cruz

Colorado State University

Chandan Kumar Jha

Le Moyne College

Fatih Kırşanlı

Yozgat Bozok University

Ashish Sedai

University of Texas at Arlington - College of Business Administration - Department of Economics

Date Written: October 1, 2022

Abstract

This study adds to largely non-existent literature on corruption and foreign direct investment (FDI) in natural resources by examining the association between the two using a panel of 20 Latin American and Caribbean countries from 1995 to 2020. We find that higher levels of corruption are associated with lower levels of FDI in natural resources, supporting the "grabbing hand" or "sand-the-wheel" hypothesis. Further, we argue that during economic downturns and crises, corrupt agents are likely to use the prevalence of corruption to disregard laws to attract greater FDI in natural resources to compensate for the adversity brought about by hard times. Consistently, we find that while still detrimental to resource FDI, corruption's diminishing effects on resource FDI are much less pronounced during economic downturns and fiscal crises, with the latter measured by credit events leading to a reduction in the present value of the sovereign debt.

Keywords: Foreign Direct Investment, Corruption, Economic Downturn, Sovereign Debt, Fiscal Crisis, Natural Resources

JEL Classification: D73, E02, E6, F21, F23

Suggested Citation

Cruz, Manuel and Jha, Chandan Kumar and Kırşanlı, Fatih and Sedai, Ashish, Corruption and FDI in Natural Resources: The Role of Economic Downturn and Crises (October 1, 2022). Available at SSRN: https://ssrn.com/abstract=4290136 or http://dx.doi.org/10.2139/ssrn.4290136

Manuel Cruz (Contact Author)

Colorado State University ( email )

Chandan Kumar Jha

Le Moyne College ( email )

Syracuse, NY 13214
United States

Fatih Kırşanlı

Yozgat Bozok University ( email )

Turkey

Ashish Sedai

University of Texas at Arlington - College of Business Administration - Department of Economics ( email )

Box 19479 UTA
Arlington, TX 76019
United States

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