دموکراسی، سرمایه گذاری مستقیم خارجی و منابع طبیعی
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of International Economics, Volume 84, Issue 1, May 2011, Pages 99–111
Empirical studies that examine the impact of democracy on foreign direct investment (FDI) assume that the relationship between democracy and FDI is the same for resource exporting and non-resource exporting countries. This paper examines whether natural resources in host countries alter this relationship. We estimate a linear dynamic panel-data model using data from 112 developing countries over the period 1982–2007. We find that democracy promotes FDI if and only if the value of the share of minerals and oil in total exports is less than some critical value. We identify 90 countries where an expansion of democracy may enhance FDI and 22 countries where an increase in democratization may reduce FDI. We also find that the effect of democracy on FDI depends on the size and not the type of natural resources.
In the past two decades, there has been a significant shift in the attitude towards foreign direct investment (FDI) to developing countries. Specifically, the discussion among academics and policymakers has shifted from whether FDI should be encouraged to how developing countries can attract FDI. Indeed 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 enhance FDI flows.2 However, many of the countries that want to attract FDI also have weak democracies or nondemocratic governments. It is therefore important to understand the effect of democratization on FDI. For example, if democracy deters FDI, then countries face a trade off — between increased democratization and attracting more FDI. This paper answers three questions: (i) Does democracy facilitate FDI?; (ii) Do natural resources alter the relationship between FDI and democracy?; and (iii) Do foreign direct investors prefer less democracy when they operate in natural resource exporting countries? Answers to these questions cannot be discerned from theory because the theoretical impact of democracy on FDI is unclear.3 On the one hand, democratic institutions may have a positive effect on FDI because democracy provides checks and balances on elected officials, and this in turn reduces arbitrary government intervention, lowers the risk of policy reversal and strengthens property right protection (North and Weingast, 1989 and Li, 2009).4 On the other hand, multinational corporations (MNCs) may prefer to invest in autocratic countries. One reason is that unlike a democracy, autocratic governments are not accountable to their electorates. As a consequence, autocratic governments may be in a better position to provide more generous incentive packages and also offer protection from labor unions (Li and Resnick, 2003). In addition, it is easier for MNCs to exploit their oligopolistic or monopolistic positions when they operate in autocratic countries (Li and Resnick, 2003). Thus, the overall effect of democracy on FDI has to be determined empirically. Natural resources in host countries may affect the FDI-democracy relationship. We provide two plausible explanations. First, note that FDI in natural resource exporting countries tends to be concentrated in extractive industries. Furthermore, a stable policy environment is important to MNCs in general, but more so for MNCs in extractive industries because the exploration and extraction of minerals involve an initial large-scale capital intensive investment (i.e., sunk cost), a high degree of uncertainty and long gestation periods.5 Thus, to the extent that longevity of government implies a more stable and predictable business environment, democratic regimes are less preferable because democracies are typically associated with a frequent change of government officials.6 The second explanation is that FDI in extractive industries is mainly driven by access to natural resources in host countries, and natural resources are strategically, politically and financially important to host countries. As a consequence, FDI in natural resources is tightly controlled by the government.7 Thus, here, having close ties with the government may imply gaining access to an invaluable production input. Clearly, such relationships are easier to foster under autocratic regimes. The importance of natural resources in determining the effect of democracy on FDI can be gleaned from Fig. 1, Fig. 2 and Fig. 3, which show the association between FDI and three measures of democracy for 87 developing countries. The democracy measures, free, polity and icrg are from three different sources: Freedom House, Polity IV and the International Country Risk Guide, respectively (we provide more details in Section 2). The countries are grouped according to their natural resource export intensity: Group 1 consists of countries where the share of the sum of minerals and oil in total merchandise exports averaged over the period 1982–2007, denoted by View the MathML sourcenat¯, is less than 50%, and Group 2 consists of countries where View the MathML sourcenat¯≥50%. For the countries in Group 1, FDI seems to be positively associated with democracy for all the three measures of democracy ( Fig. 1, Fig. 2 and Fig. 3). This contrasts with the Group 2 countries, where democracy seems to be negatively correlated with FDI (Fig. 3b) or uncorrelated with FDI ( Fig. 1 and Fig. 2). Thus, the data suggest that foreign direct investors prefer democratic governments when they operate in non-resource exporting countries, but prefer less democratic or nondemocratic governments when they operate in resource exporting countries.8 There is a vast empirical literature on the determinants of FDI, however, only a few of the studies include democracy as an explanatory variable. Our literature review reveals that the empirical research on FDI and democracy is scant and also recent. We found only twelve published articles which include democracy as a determinant of FDI, and only two of the papers were published before 2000.9 Previous studies do not take into consideration the persistent nature of FDI, the relevance of natural resources in determining the relationship between FDI and democracy, and the possibility of a reverse causality between FDI and democracy.10 This paper reassesses the relationship between democracy and FDI. To the best of our knowledge, it is the first study to analyze the interaction effect of natural resources and democracy on FDI. In addition, the paper addresses some endogeneity and dynamic issues not considered in previous studies. We estimate a dynamic panel data model where we interact the measure of democracy with the share of the sum of minerals and fuel in total merchandise exports, nat. Our analyses utilize a panel data of 112 developing countries over the period 1982–2007. We employ three measures of democracy from three different sources and we utilize two estimation techniques — the dynamic panel “difference” General Method of Moments (GMM) estimator proposed by Arellano and Bond (1991), and the “system” GMM estimator proposed by Blundell and Bond (1998). We find that democracy promotes FDI if and only if the value of the share of minerals and oil in total exports is less than some critical value. We identify 90 countries where an expansion of democracy may enhance FDI, and 22 countries where an increase in democratization may reduce FDI. We disaggregate the measure of natural resources into its two components: (i) fuel as a share of exports; and (ii) minerals as a share of exports — and find that the relationship between FDI and democracy depends on the “size” and not the “type” of natural resources. Finally, we show that our results are robust: they hold for different estimation procedures, alternative measures of democracy, different sub-samples, different time periods, when we control for FDI risk, institutional quality, political risk, and when we take into account the endogeneity of natural resources and democracy. In all the regressions, we control for macroeconomic instability, market size, openness to trade, and infrastructure development in host countries. The remainder of the paper is organized as follows. Section 2 describes the data and the variables, Section 3 discusses the estimation procedure, 4 and 5 present the empirical results, and Section 6 concludes.
نتیجه گیری انگلیسی
This paper examines the interaction between democracy, natural resources and FDI. We find that the effect of democracy on FDI depends on the importance of natural resources in the host country's exports. Democracy facilitates FDI in countries where the share of natural resources in total exports is low, but has a negative effect on FDI in countries where exports are dominated by natural resources. This result has important implications for countries in Sub-Saharan Africa — many of the countries in the region are in dire need of FDI (Asiedu, 2002), have weak democracies (Fosu, 2008), and their exports are dominated by primary commodities (Muehlberger, 2007).16