NATURAL RESOURCES AND INTERNATIONAL CAPITAL FLOWS

Melissa Magdefrau and Snyder Thomas
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Melissa Magdefrau: University of Central Arkansas, USA
Snyder Thomas: University of Central Arkansas, USA

Studies in Business and Economics, 2013, vol. 8, issue 3, 56-71

Abstract: This study examines the relationship between international capital flows and natural resources, with a focus on natural resources’ detrimental effect on institutions. In a cross-country OLS regression, natural resources appear to have a negative relationship with capital inflows when institutional quality is not controlled for. However, natural resources have a positive or insignificant relationship with capital inflows when institutions are controlled for. In a two-stage OLS regression, natural resources have a negative relationship with capital inflows through its negative effect on institutions. The measurement of institutions is taken from the Economic Freedom index by the Frasier Institute, while four different measurements of natural resource abundance are used. In particular, agriculture abundance has an indirect negative effect on capital inflows through its detrimental effect on economic freedom.

Keywords: Natural Resources; Capital Flows; Institutions (search for similar items in EconPapers)
Date: 2013
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