Do Countries’ Endowments of Non-renewable Energy Resources Matter For FDI Attraction? A Cross-country Econometric Analysis
AbstractThe vast existing empirical literature on Foreign Direct Investment (FDI) puts forward an extensive list of determinants that may explain the investment of multinational firms in a particular location. However, only a small fraction of these studies concerns the importance of natural resources in attracting FDI. Despite their valuable scientific contribution, the few studies that deal with these two themes are limited in two regards: their focus on specific geographical regions (e.g., Central and Eastern Europe, Central Asia, Sub-Saharan Africa, Middle East and North African countries); and their neglect of Non-Renewable Energy Resources (NRER). In this context, this paper intends to add empirical evidence to this research area. Specifically, it analyzes the impact of countries’ endowments of NRER (introducing here a new measure - proven reserves of coal, gas and oil) in attracting FDI in a wide set of countries, controlling for other factors that are traditionally considered as influencing FDI (e.g., market size, human capital, openness of the economy, political stability). Examining 125 host countries (75 of which have proven reserves of NRER), the empirical results show that a country’s endowment of NRER does not matter for FDI attraction whereas some ‘traditional’ factors, most notably, human capital and openness of the economy emerge as critical determinants of FDI. These results have important and encouraging policy implications for countries’ development, in particular for less developed countries that are not endowed by nature with NRER. Indeed, our results firmly indicate that development, through FDI attraction, is possible as long as countries intentionally devote resources to the enhancement of their human capital and convincing efforts are made to open up their economies to international trade.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 430.
Length: 28 pages
Date of creation: Sep 2011
Date of revision:
FDI; Eclectic Paradigm; determinants of FDI; Non-Renewable Energy Resources;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CIS-2011-10-15 (Confederation of Independent States)
- NEP-ENE-2011-10-15 (Energy Economics)
- NEP-INT-2011-10-15 (International Trade)
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- K. Gonchar & Philipp Marek, 2013. "Natural-resource or Market-seeking FDI in Russia? An Empirical Study of Locational Factors Affecting the Regional Distribution of FDI Entries," IWH Discussion Papers 3, Halle Institute for Economic Research.
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