Seminar: Juliette Milgram (University of Granada)

The FDI-Institution nexus in oil abundant countries (with  Federico Carril-Caccia and Jordi Paniagua)

Abstract: The present work reassesses 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 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 of rule of law, lack of corruption, political stability and democracy could boost greenfield investments projects. Moreover, our results validate the hypothesis of an “oil curse” on foreign direct investment (FDI), meaning that oil producers attract less greenfield projects than others. Unlike other studies, we show that the impact of institutions is not undermined by the presence of natural resources. On the opposite, the positive impact of institutional reforms is fostered by large oil production and could even cancel out the “oil curse” on FDI.