Do Natural Resources Attract Nonresource FDI?

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.

Natural Resources and FDI in GCC Countries

“…These results are further explained in Poelhekke and van der Ploeg (2013) with the same sample in the same period. They reported that in previously non-resource countries, discovering resources led to nonresource FDI to decreasing by 16% in the short term and by 68% in the long term.…”

“…As a natural resource proxy, we employ oil rents as a share of GDP as a measure of resource dependence (Asiedu 2013;Poelhekke and van der Ploeg 2013) It is worth mentioning that a high/low Oil rents/GDP ratio indicates the high/low diversification of the country. We hypothesize a negative relationship between natural resources and aggregate FDI.…”

What Have We Learned about the Resource Curse?

“…Bohn & Deacon (2000) demonstrate that countries with undemocratic institutions and endemic conflict tend to be poor investment risks for extractive firms; hence these countries tend to have both less exploration and slower extraction rates, a finding consistently echoed by later studies (Cotet & Tsui 2013, Cust & Harding 2013, Poelhekke & van der Ploeg 2013, Metcalf & Wolfram 2014.…”

Mergers and acquisitions & trade: A global value chain analysis

“…Natural resource endowment is nonsignificant, which is not surprising. Although it may foster natural resource seeking M&As, it may also deter it due to the natural resource curse on FDI (Poelhekke & van der Ploeg, ). BIT also turn to have a nonsignificant effect.…”