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Do Natural Resources Attract Nonresource FDI?

Author

Listed:
  • Steven Poelhekke

    (De Nederlandsche Bank, OxCarre, University of Oxford, and CESifo)

  • Frederick van der Ploeg

    (University of Oxford, OxCarre, CEPR, and CESifo)

Abstract

A new and extensive panel of outward nonresource and resource FDI is used to investigate the effect of natural resources on the different components of FDI. Our main findings are as follows. First, for countries which were not a resource producer before, a resource discovery causes nonresource FDI to fall 16% in the short run and by 68% in the long run. Second, for countries that were already a resource producer, a doubling of resource rents induces a 12.4% fall in nonresource FDI. Third, on average, the contraction in nonresource FDI outweighs the boom in resource FDI. Aggregate FDI falls by 4% if the resource bonanza is doubled. Finally, these negative effects on nonresource FDI are amplified through the positive spatial lags in nonresource FDI. We also find that resource FDI is vertical, whereas nonresource FDI is of the export-fragmentation variety. Our main findings are robust to different measures of resource reserves and the oil price and to allowing sample selection bias. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Steven Poelhekke & Frederick van der Ploeg, 2013. "Do Natural Resources Attract Nonresource FDI?," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 1047-1065, July.
  • Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:1047-1065
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    References listed on IDEAS

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    1. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, pages 641-658.
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    Cited by:

    1. Arshad Hayat, 2014. "FDI and Economic Growth: The Role of Natural Resources," Working Papers IES 2014/36, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Dec 2014.
    2. Leonce Ndikumana & Mare Sarr, 2016. "Capital Flight and Foreign Direct Investment in Africa: An Investigation of the Role of Natural Resource Endowment," SALDRU Working Papers 167, Southern Africa Labour and Development Research Unit, University of Cape Town.
    3. Mohamed Elheddad, 2016. "Natural Resources and FDI in GCC Countries," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(7), pages 12-22, July.
    4. Ralph De Haas & Steven Poelhekke, 2016. "Mining Matters: Natural Resource Extraction and Local Business Constraints," Tinbergen Institute Discussion Papers 16-097/VIII, Tinbergen Institute.
    5. Ralph De Haas & Steven Poelhekke, 2016. "Mining Matters; Natural Resource Extraction and Local Business Constraints," OxCarre Working Papers 175, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    6. Torfinn Harding & Anthony J Venables, 2016. "The Implications of Natural Resource Exports for Nonresource Trade," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 268-302, June.
    7. Léonce Ndikumana & Mare Sarr, 2016. "Capital flight and foreign direct investment in Africa An investigation of the role of natural resource endowment," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
    8. Demir, Firat, 2016. "Effects of FDI Flows on Institutional Development: Does It Matter Where the Investors are from?," World Development, Elsevier, vol. 78(C), pages 341-359.
    9. repec:bla:coecpo:v:35:y:2017:i:3:p:484-504 is not listed on IDEAS
    10. Choi, Jongmoo Jay & Lee, Sang Mook & Shoham, Amir, 2016. "The effects of institutional distance on FDI inflow: General environmental institutions (GEI) versus minority investor protection institutions (MIP)," International Business Review, Elsevier, pages 114-123.
    11. Poelhekke, Steven, 2015. "Do global banks facilitate foreign direct investment?," European Economic Review, Elsevier, vol. 76(C), pages 25-46.
    12. Mohamed M. Elheddad, 2016. "Towards To New Illustration Of Resource Curse: Fdi Channel Empirical Evidence From Gulf Cooperation Council (Gcc) Countries," Eurasian Journal of Economics and Finance, Eurasian Publications, pages 8-19.

    More about this item

    Keywords

    outward non-resource and resource FDI; subsoil assets; co-integration tests; spatial econometrics; hydrocarbon reserves; external margin; sample selection bias;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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