FDI, Natural Resources and Institutions

IGC Policy Brief: 

Foreign direct investment (FDI) is a good source of finance for long-term economic growth. It is especially important for its potential to transfer knowledge and technology, create jobs, boost overall productivity and enhance competitiveness in host countries. Many international development agencies, such as the World Bank, consider FDI as one of the most effective tools in the global fight against poverty, and therefore actively encourage poor countries to pursue policies that will encourage FDI flows. It is therefore important to determine the factors that affect FDI flows to developing countries.

This policy brief examines the interaction between FDI, natural resources and institutions. It 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?