Journal Article

Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia

Date Published

Mar 20, 2018

Authors

Jonas B. Bunte, Harsh Desai, Kanio Gbala, Bradley C. Parks, Daniel Miller Runfola

Publisher

Citation

Bunte, J. B., Desai, H., Gbala, K., Parks, B., & Runfola, D. M. (2018). Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia. World Development, 107, 151-162. doi:10.1016/j.worlddev.2018.02.034

Note: A version of this article was previously published as an AidData Working Paper.

Journal Article

Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia

Date Published

Mar 20, 2018

Authors

Jonas B. Bunte, Harsh Desai, Kanio Gbala, Bradley C. Parks, Daniel Miller Runfola

Citation

Bunte, J. B., Desai, H., Gbala, K., Parks, B., & Runfola, D. M. (2018). Natural resource sector FDI, government policy, and economic growth: Quasi-experimental evidence from Liberia. World Development, 107, 151-162. doi:10.1016/j.worlddev.2018.02.034

Governments use a variety of policies to increase the impact of foreign investment on economic growth. An increasingly popular policy is to require that foreign companies provide public goods near the communities where their commercial investments are sited. This approach seeks to crowd in additional investments, create clusters of interconnected firms, and set in motion economic agglomeration processes. Post-2006 Liberia represents an ideal empirical setting to test the effectiveness of this approach. We construct a new dataset that measures the precise locations of 557 natural resource concessions granted to investors. We then merge these data with a remotely sensed measure of nighttime light growth at the 1km x 1km grid cell level and analyze it using a matched difference-in-differences strategy. We find heterogeneous treatment effects across sectors and investor types: mining (specifically iron-ore) investments projects have positive growth effects, while agriculture and forestry investment projects do not; furthermore, concessions granted to Chinese investors have positive growth effects while those given to U.S. investors do not. These patterns of heterogeneous treatment effects across sectors and investor types are consistent with the theory of change underpinning the government's development corridor strategy.