Democracy, foreign direct investment and natural resources

Abstract

a b s t r a c tEmpirical studies that examine the impact of democracy on foreign direct investment (FDI) assume that the relationship between democracy and FDI is the same for resource exporting and non-resource exporting countries. This paper examines whether natural resources in host countries alter this relationship. We estimate a linear dynamic panel-data model using data from 112 developing countries over the period 1982-2007. We find that democracy promotes FDI if and only if the value of the share of minerals and oil in total exports is less than some critical value. We identify 90 countries where an expansion of democracy may enhance FDI and 22 countries where an increase in democratization may reduce FDI. We also find that the effect of democracy on FDI depends on the size and not the type of natural resources.

Foreign Direct Investment, Aid and Terrorism: Empirical Insight Conditioned on Corruption Control

“…Noting that most developing countries are challenged by prevailing corrupt leadership (Jo-Ansie, 2007;Olken and Pande, 2011;Asongu, 2013a, b;Kim, 2013;Efobi, 2014), therefore, recommending 'blanket' foreign aid increase as a remedying tool for anti-terrorism financing may not be sustainable to have a lasting effect. Third, relevant empirical evidence to illustrate how global efforts towards the sustenance of FDI flow to developing countries is required since FDI stands out as a major source of foreign capital flow for developing countries (Asiedu, 2006;Asiedu and Lien, 2011;Boly, Coniglio, Prota and Seric, 2015). This paper presents marked difference from similar studies (e.g.…”

Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?

“…target country's multiple legal and political institutions matter most to foreign investors. Some authors find that contract enforcement (or property rights relating to expropriation risk) is an important channel through which institutional quality influences foreign capital flows (e.g., Gastanaga et al, 1998;Ali et al, 2010;Asiedu et al, 2009;Asiedu and Lien, 2011;Daude and Stein, 2007;Harms and Ursprung, 2002;Li and Resnick, 2003).…”

“…National income normalization is adopted in much of the empirical FDI literature, where the dependent variable is either net or gross FDI expressed as a share of gross domestic product (GDP) or gross national income (GNI) (e.g., Ali et al, 2010;Addison and Heshmati, 2003;Asiedu, 2002Asiedu, , 2006Asiedu et al, 2009;Asiedu and Lien, 2011;Adam and Filippaios, 2007;Gastanaga et al, 1998;Méon and Sekkat, 2004;Naudé and Krugell, 2007;Noorbakhsh et al, 2001;Sánchez-Martin et al, 2014). Other empirical FDI studies, however, normalize by country-year-specific population and use FDI (net or gross) per capita as the dependent variable (e.g., Chakrabarti, 2001;Harms and Ursprung, 2002;Kinoshita and Campos, 2003;Schneider and Frey, 1985).…”

“…Inclusion of this single income variable follows the econometric specifications used by others in the empirical FDI literature (Adam and Filippaios, 2007;Asiedu, 2002;Asiedu and Lien, 2011;Chakrabarti, 2001). The reason for including both income and income growth is to independently control for market size and growth potential.…”

Do democracies have higher current account deficits?

“…For example Harms and Ursprung (2002), Adam and Filippaios (2007) and others, examine the e ect of democracy on the ow of Foreign Direct Investments. The general nding is that democracy increases FDI as long as FDI are not targeted towards the extraction of natural resources (Asiedu and Lien, 2011). Similarly there is a vast literature which examines the e ect of democracy on trade.…”