Oil rents shocks and corruption in Iran

Abstract

We investigate the response of the news-based corruption reflection index to positive shocks in oil rents in Iran. Using annual data spanning from 1962 to 2019, we employ the vector autoregressive model and analyze generalized impulse responses. Our findings reveal a statistically significant and positive (increasing) response of corruption to positive oil rent shocks. The primary mechanisms through which this relationship operates encompass inflation, increased military expenditures, and the erosion of democratic institutions. Our results demonstrate robustness when subjected to alternative corruption measurements, and when considering the role of internal conflict. The outcomes remain consistent regardless of the variable order in the estimation process. Additionally, we offer context from Iran and expound on clientelism in public investment projects, providing insight into how oil rents may contribute to corruption.