Tuesday, September 20, 2016

New OxCarre research: Resource discoveries and FDI bonanzas

New OxCarre research from:

Gerhard Toews (OxCarre) and Pierre-Louis Vezina (King's College London)

This paper examines the effect of giant oil and gas discoveries on foreign direct
investment in developing economies using a new project-level dataset. We document
a large increase in non-extraction FDI in the 2 years following a giant discovery, an
event which is unpredictable due to the uncertain nature of exploration. We find
that FDI inows increase by 73% and that this wave is driven by a 37% increase
in the number of FDI projects as well as a 22% increases in source countries and
a 17% increase in target sectors. We interpret this FDI response as evidence for the
news-driven business-cycle hypothesis within a developing country setting and highlight
FDI bonanzas as an important development channel for resource rich economies.

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