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

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  • Arshad Hayat
  • Muhammad Tahir

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.

Suggested Citation

  • Arshad Hayat & Muhammad Tahir, 2020. "Foreign direct investment, natural resources and economic growth: a threshold model approach," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 48(5), pages 929-944, September.
    • Handle: RePEc:eme:jespps:jes-03-2020-0127
    DOI: 10.1108/JES-03-2020-0127
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    More about this item

    Keywords

    FDI; Economic growth; Natural resources; Threshold model; O47; P28; P45; Q3;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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