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Foreign Direct Investment in oil-abundant countries: The role of institutions.

ABSTRACT: The present work reassesses the impact of good governance and democracy on Foreign Direct Investment (FDI) in oil-abundant countries. To this end, we estimate the effect of host countries' institutions on greenfield FDI, 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.

SUBMITTER: Carril-Caccia F

PROVIDER: S-EPMC6478325 | biostudies-literature | 2019

REPOSITORIES: biostudies-literature

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Foreign Direct Investment in oil-abundant countries: The role of institutions.

Carril-Caccia Federico F Milgram-Baleix Juliette J Paniagua Jordi J

PloS one 20190423 4

The present work reassesses the impact of good governance and democracy on Foreign Direct Investment (FDI) in oil-abundant countries. To this end, we estimate the effect of host countries' institutions on greenfield FDI, 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 th ...[more]

PMID: 31013300

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Project description:Highlights • This paper studies the relationship between FDI and carbon emissions.• It considers the innovation, regulation, and efficiency levels of the host countries.• A Panel Autoregressive Distributed Lag was applied on 21 countries divided by income level, for a period from 2001 to 2017.• FDI decreases emissions in high-income countries, while increasing them in the short run in middle-income countries, which supports the Pollution Haven Hypothesis.• This paper reveals that regulatory measures seem to be less effective in reducing emissions in high-income countries. Besides bringing countries closer, the effects of globalization can help increase the production of goods and services, and foster economic growth. Foreign direct investment (FDI) is one of the processes of globalization. One aspect of globalization that has piqued the interest of economists, is the transfer of polluting industries between countries. A principal factor in this are discrepancies of environmental regulations, and these have also been instrumental in a failure to control pollution worldwide. With this impasse in mind, a Panel Autoregressive Distributed Lag was applied to evaluate the impacts of FDI on the carbon dioxide emissions of 21 countries divided by income level, for a period from 2001 to 2017. This methodology allowed the analysis of the resulting dynamics of pollution into the short-run and long-run. The characteristics of efficiency, innovation, and regulation are crucial to better understand the consequences of flows in FDI. Regulation seems to increase pollution in high-income countries, which merits further discussion. FDI decreases emissions in high-income countries, while increasing them in the short-run in middle-income countries, which supports the Pollution Haven Hypothesis. Nonetheless, the capacity of middle-income countries to absorb technology is crucial for them to benefit in the long-run. Trade openness is also highly influenced by environmental regulation in middle-income countries. Since our aim is to understand the transfer of polluting industries, an analysis of emissions from the industrial sector provided a robustness check. It also revealed that policymakers do not seem to be paying sufficient attention to innovation and controlling the environmental degradation that this sector causes.

Dataset Information

Foreign Direct Investment in oil-abundant countries: The role of institutions.

Publications

Foreign Direct Investment in oil-abundant countries: The role of institutions.

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