Natural Resource Sector FDI and Growth in Post Conflict Settings: Evidence from Liberia

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Natural Resource Sector FDI and Growth in Post Conflict Settings: Subnational Evidence from Liberia

Citation

Bunte, Jonas B., Harsh Desai, Kanio Gbala, Brad Parks, Daniel Miller Runfola. 2017. Natural Resource Sector FDI and Growth in Post-Conflict Settings: Subnational Evidence from Liberia. AidData Working Paper #34. Williamsburg, VA: AidData. Accessed at http://aiddata.org/working-papers.

Executive Summary

Since assuming power in 2006, the Ellen Johnson-Sirleaf administration has made foreign direct investment (FDI) the centerpiece of its growth and development strategy. It has granted hundreds of natural resource concessions to foreign investors, which allow them to extract and export iron ore, gold, palm oil, rubber, and other natural resources.

The central government has required that these investors build and maintain public infrastructure, such as roads, bridges, ports, and electricity grids. Its goal is to target these infrastructure investments in specific geographic areas in order to set in motion broader economic agglomeration processes and establish new "growth poles" or "development corridors. But has this worked?

Our study presents first-of-its-kind evidence on the local economic growth impacts of FDI in the natural resource sector. We first built a subnationally georeferenced dataset of all natural resource concessions granted to foreign investors and then merged it with survey- and satellite-based outcome and covariate data. We then used remotely sensed data on nighttime light to measure local economic growth and quasi-experimental methods to compare growth in otherwise similar locations with and without FDI.

Four Key Findings

Our results challenge the conventional wisdom extractive sector investment usually leads to low growth, no growth, or even negative growth outcomes. In fact, we find that the Ellen Johnson-Sirleaf administration’s strategy of granting natural resource concessions to foreign investors has produced positive and substantial economic growth benefits. Our results also suggest that not all types of investment in the natural resource sector are equally beneficial, and it may be advisable for countries such as Liberia to increase the level of priority assigned to specific types of concessions and concessionaires where there is a higher likelihood that investment will produce significant development benefits.

  1. Natural resource concessions improve local economic growth outcomes.

    On average, natural resource concessions increase nighttime light by .58% in the 25 km surrounding concession areas, which roughly corresponds to a .17% increase in local GDP.

  2. Mining concessions have a positive effect on local economic growth outcomes.

    By contrast, there is no robust evidence that agricultural concessions register consistent effects on local economic growth outcomes.

  3. Corporate social responsibilty (CSR) projects do not have not detectable effects on local economic growth outcomes.

    We found no evidence that concessions with CSR provisions economically outperform concessions without CSR provisions.

  4. U.S. concessions do not have any discernible effect on local economic growth, while Chinese concessions do.

    Chinese mining investments increase nighttime light output by 1.26% in the 20 km surrounding their concession areas, which is roughly equivalent to a .38% increase in local GDP.

Opportunities for Additional Analysis

The study also points out that the growing availability of subnationally georeferenced data makes it possible to answer several additional policy questions:

  1. How do concessions affect the very poor?

    Follow-up studies could strengthen the robustness of these findings by analyzing outcome variables other than nighttime light growth.

  2. How widely are economic benefits shared?

    Future research could examine the extent to which economic benefits of natural resource concessions are shared between ethnic or religious groups or men versus women.

  3. How do concessions affect non-economic outcomes?

    Future research ought to examine the effects that concessions have on non-economic oucomes such as social protest, land conflict, violent conflict, and deforestation.