Abstract
This paper analyzes whether mining FDI ‘crowds in’ or ‘out’ FDI in other sectors via intersectoral linkages. It utilizes a novel data set covering an unbalanced panel of sector-disaggregated FDI flows for 70 countries during the period from 1985 to 2010. Results show differential effects of mining FDI on FDI in other sectors (manufacturing, financial services, non-financial services) and across country groups. Some of the most interesting results are seen in the high-income countries group, where mining FDI is observed to have a crowding-out effect on financial services FDI, and in the lower middle-income countries group, where mining FDI is observed to crowd in both manufacturing and financial services FDI.
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Notes
Results were estimated using a fixed effects approach.
Results were estimated using GMM.
The manufacturing FDI variable appears to be one of the most important determinants of services FDI in the model, based on the value of the standardized coefficients of all the explanatory variables.
Manufacturing refers to industries belonging to International Standard Industrial Classification (ISIC), revision 3, divisions 15–37. Services correspond to ISIC divisions 50–99. Services include value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any statistical discrepancies noted by national compilers, as well as discrepancies arising from rescaling.
Some of the previous studies that considered the impact of natural resource endowment on FDI inflows include Poelhekke and van der Ploeg (2012), who found resource discovery to have a crowding-in effect on natural resource FDI and a crowding-out effect on non-resource FDI using data on FDI outflows from the Netherlands for the period 1984 to 2002.
The inclusion of this variable is motivated by the arguments in La Porta et al. (1998), which posited that ‘risk of repudiation of contracts by government’, ‘risk of expropriation’ and ‘shareholder rights’ also matter. ‘Investment profile’ also captures instabilities in the business environment as per the discussion in Brada et al. (2006).
Due to space constraints, only the full regression results for ‘Europe and Central Asia’ (Table C4) are included in this draft. The rest are available upon request.
In a way, this is a predictable result. Nevertheless, the significance of including this variable as a right-hand-side factor is that it allows us to ascertain the effects of other variables once this variable has been accounted for. Indeed we are able to derive interesting results even as we correct for the possible effect of stability and accountability proxies for governance.
As Tondl and Fornero (2010) noted, it is possible that foreign mining firms demand a more efficient processing of the extractive products by the downstream firms.
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Acknowledgements
We would like to thank the participants in the AEA/ASSA 2013 meetings of the Association for Comparative Economic Studies (ACES) in San Diego, California and to two anonymous referees for their helpful suggestions.
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Appendices
Appendix A
World Sectoral FDI Net Inflows, 1990–2010.
Appendix B
Countries and years of data
Lower middle-income countries:
Albania 2004–2006, Armenia 1998–2002; 2008–2009, Azerbaijan 1995–2008, Bolivia 1974–2008, Bosnia and Herzegovina 2004–2009, China 1997–2008, Colombia 1994–2009, Dominican Republic 2001–2010, Ecuador 1986–2010, El Salvador 2007–2008, Guyana 1992–1999, Indonesia 1999–2010, Jamaica 1998–2009, Macedonia, FYR 1997–2010, Morocco 1996–2010, Nicaragua 1991–2010, Paraguay 1991–1993, Peru 1974–2010, Philippines 1974–2010, Syrian Arab Republic 2004–2008, Thailand 1970–2010, Tunisia 1980–2010, Ukraine 2003–2004.
Upper middle-income countries:
Argentina 1978–2010, Belize 2004–2010, Brazil 1996–2010, Bulgaria 1999–2010, Chile 1974–2010, Croatia 1996–2010, Hungary 1999–2010, Kazakhstan 1993–2009, Latvia 1999–2010, Lithuania 1997–2010, Malaysia 1999–2010, Mexico 1985–2010, Oman 1992–1995; 2004–2009, Poland 1994–2009, Romania 2003–2008, Russian Federation 1998–2009, Serbia 2004–2008, Slovak Republic 2000–2008, Turkey 1992–2010, Uruguay 2006–2008, Venezuela 1976–2008.
High-income countries:
Australia 1985–2010, Austria 1998–2010, Belgium 2002–2010, Brunei Darussalam 1999–2003, Canada 1985–2005, Cyprus 1997–2008, Czech Republic 1993–2010, Denmark 1985–2010, Estonia 1996–2010, Finland 2002–2010, France 1985–2010, Germany 1985–2010, Greece 2001–2010, Iceland 1988–2010, Israel 2000–2007, Italy 1985–2010, Japan 2009–2010, Korea, Rep. 1985–2010, Luxembourg 2005–2009, Netherlands 1991–2010, New Zealand 1985–1989, Norway 1994–2010, Portugal 1985–1995; 2008–2010, Saudi Arabia 2004–2010, Singapore 1999–2003, Slovenia 2006–2010, Spain 1985–2010, Sweden 1989–2005, Trinidad and Tobago 1974–2009, United Kingdom 1985–2010, United States 1985–2010.
South and East Asia and the Pacific:
Australia, Bangladesh, Brunei Darussalam, Cambodia, China, India, Indonesia, Japan, Korea, Dem. Rep., Lao PDR, Malaysia, New Zealand, Pakistan, Philippines, Singapore, Thailand, Vietnam.
Europe and central Asia:
Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Luxembourg, Macedonia, FYR, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Serbia, Slovak Republic, Slovenia, Spain, Sweden, Turkey, Ukraine, United Kingdom.
Appendix C
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Doytch, N., U Mendoza, R. & Siriban, C. Does Mining FDI Crowd in Other Investments? Investigation of FDI Intersectoral Linkages. Comp Econ Stud 57, 326–344 (2015). https://doi.org/10.1057/ces.2015.2
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DOI: https://doi.org/10.1057/ces.2015.2