Does Mining FDI Crowd in or Crowd Out Other Investments? A Cross-Country Investigation of FDI Intersectoral Linkages

39 Pages Posted: 26 Oct 2013

See all articles by Ronald U. Mendoza

Ronald U. Mendoza

Ateneo De Manila University - Ateneo School of Government

Charles Siriban

Asian Institute of Management - Policy Center

Nadia K. Doytch

CUNY - The Graduate Center

Date Written: October 25, 2013

Abstract

Foreign Direct Investment (FDI) in extractive industries (mining and quarrying) is expected to increase dramatically in many developing countries, due to the rising global demand for commodities. One key question for policymakers is whether this form of FDI could help spur investments in other sectors, in order to help boost their countries’ long term growth prospects. Countries with large extractive industries seek to promote economic diversification, so other types of FDI would also be critical in this regard. This paper analyzes whether mining FDI "crowds out" or "crowds in" FDI in other sectors via intersectoral linkages. It utilizes a novel data set covering sector-disaggregated FDI flows in 70 countries from 1985 to 2010. Results show differential effects of mining FDI on FDI in other sectors (manufacturing, services, financial services, non-financial services) and across country groups. Some of the interesting results are seen in the high income countries group, where mining FDI is observed to have crowding out effect on total services and more specifically, 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.

Keywords: Foreign direct investment (FDI), spillovers, crowding out, mining

JEL Classification: F2, F21, O16, O19

Suggested Citation

Mendoza, Ronald U. and Siriban, Charles and Doytch, Nadia K., Does Mining FDI Crowd in or Crowd Out Other Investments? A Cross-Country Investigation of FDI Intersectoral Linkages (October 25, 2013). Available at SSRN: https://ssrn.com/abstract=2345226 or http://dx.doi.org/10.2139/ssrn.2345226

Ronald U. Mendoza (Contact Author)

Ateneo De Manila University - Ateneo School of Government ( email )

Katipunan Road
Loyola Heights
Quezon City, 1108
Philippines

Charles Siriban

Asian Institute of Management - Policy Center ( email )

Eugenio Lopez Foundation Bldg
Joseph McMicking Campus, 123 Paseo de Roxas
Makati City, Metro Manila
Philippines

Nadia K. Doytch

CUNY - The Graduate Center ( email )

365 Fifth Avenue
New York,, NY 10016
United States

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