Natural resources, foreign direct investment, and corruption in developing countries

This paper examines the complex relationship between natural resources (oil, minerals, etc), corruption and foreign direct investment (FDI) in developing countries.  There has been a debate in the literature about whether corruption impact FDI, with the empirical results being mixed.  In this paper, we examine whether natural resource endowments can help to explain these mixed results.  Specifically, we find that the impact of corruption on FDI differs based on whether the FDI is natural resource based or not.  We find that FDI used for natural resource extraction is generally less sensitive to corruption.  In fact, corruption may even have a positive impact on natural resource based FDI.  With the advantage of our panel data set we are able to account for issues of endogeneity in the causality between FDI and corruption.  These results yield insights into the debate in the literature and have policy implications (especially for countries with natural resources).