Amini, C; (2014) FDI and Property Rights in Resource Rich Economies. In: International Business and Institutions after the Financial Crisis. (pp. 53-72). Palgrave Macmillan: London, UK.

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Abstract

International organizations and policymakers have often promoted foreign direct investment (FDI) as a necessary instrument for economic development. The theoretical literature in support of this view argues that FDI can trigger growth and development by generating knowledge and technological spillovers . However the empirical evidence on this is rather mixed (Alfaro et al., 2009). Scholars have shown that positive effects arising from FDI are likely to depend on host country characteristics, such as the level of human capital, financial markets and the institutional frameworks (Blomström and, 2003; de Mello, 1999). Moreover the activities of multinational companies (MNCs) have aroused controversy and concern, especially in the case of the extractive industry and natural commodities sectors, where resources are often located in conflict-prone regions. Recent research has highlighted that in some cases foreign companies in the extractive industry have aggravated violence and conflict, for example, by providing arms or finance (Ballentine and Nitzschke, 2004). In such cases, the beneficial effect of FDI is likely to be limited due to the potential effects on the real exchange rate and loss of competitiveness (Le Billon, 2005; Sachs and Warner, 2001), worsening social inequality (Renner, 2002; Ross, 1999) and instability (Collier, 2004). In addition, recent research highlights that in resource-rich economies the role played by host country characteristics in attracting foreign investors differs compared to other economies.

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