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Democracy, Foreign Direct Investment and Natural Resources

  • Elizabeth Asiedu

    (Department of Economics, The University of Kansas)

  • Donald Lien

    (Department of Economics, University of Texas, San Antonio)

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    Existing studies assume that the impact of democracy on FDI is the same for re- source exporting and non-resource exporting countries. This paper examines whether natural resources alter the relationship between FDI and democracy. We estimate a linear dynamic panel-data model using data from 112 developing countries over the period 1982-2007, and we .nd that there is some critical value of the share of miner- als and oil in total exports below which democracy enhances FDI, and above which democracy reduces FDI. We identify 90 countries where an expansion of democracy may enhance FDI and 22 countries where an increase in democratization may reduce FDI.

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    File URL: http://www2.ku.edu/~kuwpaper/2009Papers/201009.pdf
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    Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201009.

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    Length: 39 pages
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:kan:wpaper:201009
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    Web page: http://www2.ku.edu/~kuwpaper/
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    1. Elizabeth Asiedu & Hadi Salehi Esfahani, 2001. "Ownership Structure In Foreign Direct Investment Projects," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 647-662, November.
    2. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-42, June.
    4. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2005. "From Education to Democracy?," NBER Working Papers 11204, National Bureau of Economic Research, Inc.
    5. Adam, Antonis & Filippaios, Fragkiskos, 2007. "Foreign direct investment and civil liberties: A new perspective," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1038-1052, December.
    6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
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