Review of World Economics

, Volume 153, Issue 4, pp 809–832 | Cite as

Natural resource extraction, corruption, and expropriation

  • Ramin Dadasov
  • Carsten Hefeker
  • Oliver Lorz
Original Paper


We develop a formal model that looks at the mutually endogenous determination of foreign direct investments in the extraction of natural resources, at the decision of host governments to expropriate these investments, and at the level of corruption. Higher investments in resource extraction make expropriation more attractive from the perspective of national governments. A low expropriation risk is in turn an important determinant of international investments and is therefore associated with high levels of resources extraction. Moreover, investments in the resource sector also raise corruption. Our theoretical predictions are confirmed by estimations of a simultaneous equation model in which we endogenize expropriation risk, corruption, and resource extraction.


Natural resources Expropriation Foreign direct investment Institutions 

JEL Classification

F21 D73 Q38 


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Copyright information

© Kiel Institute 2017

Authors and Affiliations

  1. 1.Hertie School of GovernanceBerlinGermany
  2. 2.Department of EconomicsUniversity of SiegenSiegenGermany
  3. 3.CESifoMunichGermany
  4. 4.School of Business and EconomicsRWTH Aachen UniversityAachenGermany

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