A blessing to be cursed?

The correlation between countries rich in natural resources and their state of development has not been left unnoticed in the economic literature. Some have even spoken of a resource curse, where abundance in natural resources induces slower economic growth. This paper investigates whether such a resource curse is reflected in the outward direct investment patterns of resource dependent countries and to what extent institutional quality from both the source and destination country have a role in this. Employing greenfield investment data from the fDi Markets database, I indeed find evidence in favour of a resource curse. Furthermore, contrary to the existing literature, I establish that investments originating from resource dependent countries are more sensitive to deterioration of institutions in the destination country. Finally, interacting source country institutional quality with resource dependence, I find no evidence for the hypothesis that resource dependent countries with higher institutional quality are less prone to the resource curse. These results are robust to several changes in the analysis. Celine Woldring