Sustainability of energy assets and corruption in the developing countries

Numerical measures indicate that corruption is generally higher in the developing countries with energy assets (oil, gas and coal) as opposed to non-energy asset developing nations. The presence of energy asset means that governments can effectively gauge their nations reserves to production ratio which can strengthen their negotiating powers with industries in the extractive sector to earn more future income, creating a fertile ground for corruption to emerge. Hence, whether or not the presence of energy assets fuels more corruption is an area of research that is overlooked that deserves further investigation. This paper investigates the effect of energy assets on corruption in developing economies. The studies empirical methodology involves the estimation of a reduced form equation utilising wealth accounts data on energy assets (oil, natural gas and coal) in order to investigate its effect on corruption while simultaneously controlling for nations economic, social and institutional structure. Based on the heteroskedasticity-consistent covariance matrix regression methodology, the findings of this study revealed a statistically significant and negative correlation of oil on corruption for the years 2005, 2010 and 2014. The results also showed a statistically significant and negative correlation of coal and natural gas on corruption for 2005. The findings also revealed that economic development, education and the rule of law are fundamentally essential variables in controlling corruption. This study's main policy implication is the need for governments to institute credible anti-corruption measures in the energy-related resource industries. In particular, the strengthening of the legal frameworks, including legislations of strong anti-corruption laws where individuals and firms engaged in corrupt practices are held accountable. The seizure of incomes and assets acquired through corrupt means, imposing severe financial penalties, monitoring and accountability of origin of offshore payments by international firms and banks and closure of firms engaged in corruption are some of the practical measures forward that can lead to the long-term sustainability of sub-soil energy assets.