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The foreign direct investment-institution nexus in oil-abundant countries

Author

Listed:
  • Federico Carril-Caccia

    (Department of Economic Theory and History, University of Granada (Spain).)

  • Juliette Milgram Baleix

    (Department of Economic Analysis and Political Economy, University of Seville (Spain).)

  • Jordi Paniagua

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)

Abstract

The present work reassesses the link between natural resources, institutional quality and foreign direct investment (FDI). In particular, we focus on the impact of good governance and democracy on foreign direct investment in oil-abundant countries. To this end, we estimate the effect of host countries’ institutions on the extensive margin (number of bilateral greenfield investment projects), using a gravity equation for a dataset that covers 182 countries during 2003-2012. Our findings confirm that compliance to rule of law, lack of corruption, political stability and democracy could boost new FDI links through the extensive margin. Our results could not rule out the “oil curse”, meaning that oil producers attract fewer new greenfield projects than similar countries without oil. Unlike other studies, we show that the impact of institutions is not necessarily undermined by the presence of natural resources.

Suggested Citation

  • Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1903
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    References listed on IDEAS

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    Keywords

    Democracy; FDI; gravity equation; institutions; oil;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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
    • Q39 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Other

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