Foreign direct investment, natural resources and economic growth: a threshold model approach

Abstract

Purpose The aim of this paper is to investigate the contingency effect of natural resource abundance on the foreign direct investment (FDI)–growth relationship in a nonlinear (threshold) model. Design/methodology/approach The authors use the fixed effect threshold model for panel data with annual frequency for 83 countries and estimate threshold level of natural resource abundance that split the sample and change the FDI–growth relationship. Findings The results show that FDI has a strong positive impact on the economic growth of the host country if the host country's natural resources export is below the statistically significant estimated threshold. However, this FDI-induced economic growth is watered-down if the countries natural resources export is larger than the estimated threshold. Originality/value The results show that FDI has a strong positive impact on the economic growth of the host country if the host country's natural resources export is below the statistically significant estimated threshold. However, this FDI-induced economic growth is watered-down if the countries natural resources export is larger than the estimated threshold. The results are robust for alternative indicators of natural resources, i.e. natural resources rents.

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