Natural Resources, Institutions and FDI

This paper examines the interaction between foreign direct investment (FDI), natural resources and institutions. The paper answers three questions: (i) Do natural resources crowd out FDI – i.e., is there an FDI-natural resource curse?; (ii) Do institutions mitigate the adverse effect of natural resources on FDI? (iii) Can institutions completely neutralise the FDI-natural resource curse? Elizabeth Asiedu uses the systems GMM estimator proposed by Blundell and Bond (1998) to estimate a linear dynamic panel data model. These analyses employ a panel data of 99 developing countries over the period 1984-2011. The paper considers six measures of institutional quality from two different sources, and two measures of natural resources. Asiedu finds that natural resources have an adverse effect on FDI and that the FDI-resource curse persists even after controlling for the quality of institutions and other important determinants of FDI. The paper closes with a discussion on the implications of the results for Ghana and countries in Sub-Saharan Africa.