Natural resource abundance, nonresource taxation, and corruption: An illustration from developing Latin American countries

Why is corruption so prevalent in the majority of developing Latin American countries? While there are several forces driving it, this article focuses on its links to natural-resource endowment. We present empirical evidence based on a panel dataset of 103 developing countries from 1996 to 2016, suggesting that there is an overall positive relationship between natural-resource abundance and corruption. What, then, explains the divergent performances of resource-rich developing economies in the region in terms of corruption? We argue that the workings of a social contract mechanism between the state and citizens mediate the resource–corruption relationship. This article identifies the ability of the state to tax the nonresource sector as a crucial component of such a mechanism, through which the unfavorable effects of natural-resource abundance on corruption can be alleviated to a certain extent. Finally, our country studies suggest that the direct components of nonresource tax revenues do more to condition the resource–corruption linkage than the indirect components.