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

Federico Carril-Caccia, Juliette Milgram Baleix () and Jordi Paniagua ()
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Federico Carril-Caccia: Department of Economic Theory and History, University of Granada (Spain).

No 1903, Working Papers from Department of Applied Economics II, Universidad de Valencia

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.

Keywords: Democracy; FDI; gravity equation; institutions; oil (search for similar items in EconPapers)
JEL-codes: C23 F21 F23 Q39 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-cdm, nep-ene and nep-int
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