Introduction to Empirical Section

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To summarize these results, I calculated expected values for a typical country, both with and without abundant natural resources, conditional on changes in economic policy and political regime type (see Table 3). I define a country with abundant natural resources as one where the value of energy and mineral extraction exceeds one third of gross national income.19 The average value of production in the extractive sector (energy and minerals) for these cases is 45% of GNI (for countries with average populations over one million). The average value of production for the other countries is just under 3% of GNI. I used the mean values for all other variables (using data from countries with an average population of over one million).

According to Table 3, in a typical year, the highest level of investment in the private sector (over $50 per capita) can be expected to flow to countries with high natural endowments with an authoritarian regime (note, however, that the level of flows also depends on the level of flows in a given year). Flows to the private sector in natural endowment-rich countries is expected to be lower if statist policies are applied, or if the regime is democratic. It is rare for natural endowment rich countries to be democratic, however, and the only case of an endowment-rich country with both democracy and statist policies (among the cases coded so far) is Nigeria, 1979-1982, under President Shehu Shagari, whose government became a “colossus of corruption” (Othman 1984). For example, state governments were issued licenses to import rice and then sold these contracts to the highest bidder. Such practices bankrupted the country and soon led to a coup. It is little wonder that foreign investors found these circumstances of corruption and instability unappealing. In the public sector, however, statist policies are associated with a high level of investment flows (over $18 per capita for nondemocracies) for countries heavily endowed with natural resources, while such countries receive virtually no flows to the public sector under capitalist policies

In non-resource abundant cases, investment in the private sector is highest under democratic capitalist regimes (over $12 per capita) and lowest under authoritarian statist regimes ($7 per capita). This suggests that democratic capitalist regimes are likely the most hospitable to market-seeking FDI, and, to the extent that Africa attracts such FDI, efficiency-seeking FDI. (The greatest recipient of efficiency seeking FDI is probably Mauritius, known as the “African tiger,” which has no extractive resources, a stable democracy, scores high on the financial openness index and has almost no state-owned enterprises). Flows to the public sector, on the other hand, tend to be low (less than $3 per capita) no matter what the regime type or economic strategy.

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