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Do Natural Resources Attract Nonresource FDI?

  • Steven Poelhekke

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

  • Frederick van der Ploeg

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

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.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 3 (July)
Pages: 1047-1065

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Handle: RePEc:tpr:restat:v:95:y:2013:i:3:p:1047-1065
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  1. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
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