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Do Natural Resources Attract FDI? Evidence from non-stationary sector level data

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  • Steven Poelhekke
  • Frederick van der Ploeg

Abstract

A new and extensive panel of outward foreign direct investment (FDI) at the sector level is used to estimate the determinants of non-resource and resource FDI. Since FDI is I(1), we estimate panel errorcorrection models of FDI with spatial lags for FDI and market potential. Our main result is that subsoil assets boost resource FDI, but crowd out non-resource FDI. The effect on non-resource FDI dominates, so that aggregate FDI is less in resource-rich countries. Spatial lags aggravate this crowding out of nonresource FDI. In addition, we find that (i) resource FDI is mainly vertical whereas other FDI is of the export-fragmentation variety; (ii) trade openness, free trade agreements and institutional quality do not impact non-resource FDI but institutional quality does have a positive effect on resource FDI; and (iii) the short-run dynamics comes mostly from shocks to FDI itself. Our main and ancillary results are robust to different measures of resource reserves and the oil price and to allowing for sample selection bias.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 266.

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Date of creation: Nov 2010
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Handle: RePEc:dnb:dnbwpp:266

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Keywords: outward sector level FDI; subsoil assets; co-integration tests; spatial econometrics; hydrocarbon reserves; external margin; sample selection bias;

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Cited by:
  1. Steven Poelhekke & Frederick van der Ploeg, 2012. "Green Havens and Pollution Havens," OxCarre Working Papers 087, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Mariya Aleksynska & Olena Havrylchyk, 2011. "FDI from the South: the Role of Institutional Distance and Natural Resources," Working Papers 2011-05, CEPII research center.

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