Impact of foreign direct investment in resource extracting

industries and environmental welfare of the developing world

Abstract:

How does FDI in resource extraction industries (REIs) affect environmental welfare in

developing countries? Anecdotal evidence from South America, the Middle East and

sub-Saharan Africa links resource dependence with widespread environmental

degradation. Given that many developing countries are resource rich and, therefore,

desirable destinations for FDI, it is imperative to understand if these highly publicized

negative outcomes are anomalous, or rather examples of a global systematic pattern.

This research complements the vast literature exploring how FDI affects the developing

world by investigating the relatively understudied relationship of FDI in REIs and

environmental sustainability. I conceptualize environmental welfare as the intrinsic link

between human welfare and environmental sustainability, and argue that the

environmental (and human) wellbeing of resource dependent countries may be

negatively affected by FDI in REIs. I test my argument quantitatively in a sample of 30

developing countries over 33 years. I find that environmental degradation is strongly

correlated with FDI in REIs. These conclusions are relevant to the current global

context, where the global political economy benefits from partnerships between private

actors and public entities, to ensure global, environmental, and economic stability. This

1
research is also relevant to American public policy in terms of its foreign aid

commitment towards global human development

Introduction

It kills our fish, destroys our skin, spoils our streams, we cannot drink I have

no livelihood left (Duffield 2010). This quote from Nigerian resident, Saturday Pirri,

references the perpetual negative effect of foreign oil industries operating in his in his

country. The UNDP reports that more than sixty percent of Nigerian citizens principle

source of food stems from their natural environment (Petroleum, Pollution and

Poverty in the Niger Delta 2001). However, the strong presence of resource extracting

industries (REIs) operating within the country has greatly weakened the status of this

quintessential element of the human condition in Nigeria. Additionally, the U.N has

concluded that it will take at least thirty years for Nigerias environment to fully recover

from the estimated 7,000 oil spills which have taken place since 2000 (Duffield 2010).

Moreover, minimal effort has been made by Nigerian government to better regulate the

workings of foreign firms due to its economic dependence on extractive foreign direct

investment (Portnoy 2012; BBC news 2012; Watts 2008).

Though FDI is frequently regarded by academics and policy makers as integral

step on the road to development in the third world, the effects of natural resource

extraction by foreign entities within developing nations are often severely detrimental

2
to the environment (Gray 2002; Moran 2011). Given that many developing countries are

resource rich and, therefore, a desirable destination for FDI; it is imperative to

understand if the highly publicized negative consequences such as those experienced in

Nigeria are anomalous, or examples of a global systematic pattern. It is the intent of this

paper to investigate how FDI into REIs affects the environmental aspect of human

welfare within developing countries.

The relationship of FDI into REIs and developing countries speaks volumes to

the global political economys influence on human rights. Resource extraction is indeed

one of the most profitable industries in the world. Natural resources are responsible for

one fifth of global trade. Alone, the oil and gas market make up for 15% of the world

economy (Moran 2010). In 2012, over 50% of total GDP in nine developing countries

was dependent on natural resource exportation (Ruta and Venables 2012). However,

UNCTAD notes, most mineral- and oil-abundant economies have performed worse in

terms of (human development) and poverty reduction than resource-poor ones (2007).

The disconcerting reality that two-thirds of the worlds poor reside in resource-rich

states suggests that their wellbeing may be greatly affected by the presence of extractive

multinational corporations (MNCs) operating within their region (Transparency

International and Revenue Watch 2012).

This topic also holds relevancy to American policy. The federal government is

the worlds top donor in foreign aid- spending roughly 50 billion dollars each year

(U.S. Foreign Aid By Country 2012). The U.S Agency for International Development

3
(USAID), cites two of its purposes as the improvement of global health and

environmental sustainability (2014). Additionally, President Barack Obama claims that

his Presidential Policy Directive on Global Development recognizes foreign aid as vital

to U.S. national security and is a strategic, economic, and moral imperative for the

United States. According to this policy directive, America should utilize its foreign

assistance to improve global human development through the integrating markets of

poor countries into the global economy (Whitehouse.gov 2010). However, this paper

will argue that Economic liberalization can foster the spread of FDI into REIs in

developing countries with little to non-existent environmental protective regulations.

Thus, spending foreign aid to accomplish both of the ambitious goals of human

development through liberalizing trade while maintaining global environmental

sustainability may be counterproductive and increasingly expensive.

The research presented in this paper complements existing literature on the topic

of FDI and developing countries by focusing on the human consequences of

environmental degradation brought on by high volumes of the former concept into the

extractive sector of host countries. I explain the intrinsic link between human welfare

and environmental sustainability by conceptualizing environmental welfare in the

context of the individual level, and argue that this component of wellbeing will be

negatively affected by strong levels of FDI into REIs. The hypothesis is quantitatively

tested by a sample 30 countries over 33 years. Additionally, I hypothesize that

institutional type determines the extent of environmental degradation. The findings

4
provide evidence that FDI into REI intensity is directly correlated with the

environmental degradation of several components of environmental and human health.

Astonishingly, my findings also show the democracies perform worse in terms of

environmental welfare comparative to autocracies. The conclusions are relevant to the

current global context, where the global political economy benefits from partnerships

between private actors and public entities, to ensure global, environmental, and

economic stability. My findings are also relevant to American policy as it pertains to its

commitment to global human development.

This paper is organized as follows. Existing relevant literature is discussed in the

next section. Following the literature review is a conceptualization of the research

questions variables, the argument and hypotheses, and an explanation of the research

design. Lastly, the conclusion includes policy recommendations.

Literature review

The effect of FDI on the environment of developing countries is a subject

entrenched in debate. The relevant literature on this topic is often associated with the

concept of the pollution havens hypothesis (PHH)- the notion that pollution intensive

firms actively seek to invest in a country with lax environmental standards compared to

that of the home country in order to avoid abatement costs and maximize profitability

(Neumayer 2001; Spatareanu 2007). Zeng and Eastin question the validity of such a

concept by stressing the self-regulating nature of MNCs (2007). Through an empirical

analysis of FDI flows in China, these authors argue that MNCs are deterred from

5
engaging in pollution intensive operations by fear of future regulation. They claim that

FDI can be positively correlated with environmental protection because increased

environmental degradation by MNCs will inevitably lead to home country

implementation of stringent environmental regulation which, in turn, damages

profitability. Additionally, the authors maintain that FDI facilitates cleaner

technology spillover to developing countries which otherwise could not afford it. Thus,

the self-regulating nature of MNCs does not account for pollution havens, and can

result in a positive impact on the environment of a host country (Zeng and Eastin 2007).

In stark contrast to the above mentioned literature, Spatareanu (2007), and Cole

et al. 2006) use empirical analysis to uphold the validity of the PHH. Spartareanu refers

to a Push-Pull effect which dictates the likelihood of pollution intensive industries to

invest abroad. The push effect is the pollution intensive industrys reaction to the

home countrys environmental policy of abatement costs (pollution tax, fines, and

protective technology requirements, etc.). Such regulation deters pollution intensive

industries from continuing investment into their home country. The pull effect occurs

when a potential host country is identified as desirable target for investment because

their existing environmental policies are of greater laxity compared to that of the home

country. Spatareanus empirical research provides evidence that the laxity of

environmental regulation not only determines the likelihood of foreign investment but

also the volume (Spatareanu 2007).

6
 Cole et al. (2006) elucidate that the existence of pollution havens is dependent on

the corruptibility of host countries. These authors maintain that MNCs are more likely

to invest in countries with lax environmental standards, and engage in lobbying

(although they clarify that bribery is a more appropriate description) to sustain or

increase the laxity of host country environmental regulation. Their empirical evidence

finds that the higher degree of corruptibility, the more likely a host country will be

influenced by the bribery effect which facilitates unchecked MNC operations that

lead to greater environmental degradation. Inversely, their findings show that countries

with low corruptibility are correlated with a negative effect on environmental

degradation (Cole, Elliott, and Fredriksson 2006).

The aforementioned articles illustrate some of the main points of debate

concerning the relationship described in this paper. Zeng and Eastin (2007) demonstrate

how FDI can benefit the environment by focusing on the cleaner technology spillover

characteristic of FDI, but their observation is limited to China which is not

representative of FDI impact in the global realm (2007). Spatareanus analysis of the

push-pull effect describes why MNCs are likely to invest abroad given their desire to

avoid higher abatement costs, but the research is a narrow focus on investment into

European countries over three years (2007). The Cole et al. article empirically analyzes

how MNC influence on developing countries can result in stagnating effects on their

environmental policy, but does not observe the direct environmental health

consequences of FDI into REIs.

7
 This paper adds to existing empirical work related to the impact of FDI on the

developing world by including, unlike earlier studies, a narrowed focus of FDI into the

extractive sector and its effect on the human welfare aspect of the environment. Given

that FDI has been associated with both positive and negative effects on the developing

host country (Gray 2002; Moran 2010), an observation solely inclusive of FDI targeted

into the REIs is necessary to determine how industry type FDI matters. Moreover,

environmental degradation can take the form of numerous manifestations- be it

consequences for wildlife, ecosystem health, land conservation, etc. (Picolotti and

Taillant 2003). As such, the research presented in this paper is inclusive of several

components of environmental health, and should be viewed in terms of their

importance to sustaining human wellbeing in order to account for the intrinsic link

between human and environmental wellbeing.

Defining environmental welfare

Adopting an official definition which establishes a direct link between human

welfare and environmental health is a challenge the international community has yet to

overcome. The 1994 edition of UNs Human development Report identifies

environmental security as an important conduit for sustaining and improving the

human condition in regions of poor quality of life, but does not provide a detailed

explanation for the concept (UNDP 1994). The result of this ambiguity came in form of

an array of attempts from academics producing various, indistinct, and sometimes

competing definitions of environmental security (Glenn et al. 2009). Additionally,

8
neither the U.N or the World Health Organization have yet to officially adopt a

definition of environmental security (Glenn et al. 2009).

The necessity for a definition which identifies the intrinsic link between human

welfare and environmental health is evident by the focus gap among human rights and

environmentalist groups. While human rights groups tend to place their primary focus

on the political and civil injustices, environmentalist factions focus their attention on

natural resource and land preservation without incorporating the human wellbeing

impacts of environmental deprivation. As a result, populations which suffer

consequences to their livelihood or wellbeing from environmental abuse (such as those

experienced in Nigeria) are overlooked by the framers of international laws and policies

(Picolotti and Taillant 2003).

The concept of environmental welfare derives from three previously produced

definitions- , human welfare, human security, and environmental sustainability.

The UNRISD describes the first of these as the provisions of sustainable and improved

conditions of living. This definition includes, but is not limited to, the natural

environment as it is a channel for local populations to acquire necessary resources such

as food and clean water (Blaikie and Jeanrenaud 1996).

Similar to the definition produced by the previously mentioned, Mathew (2010)

cites human security as particularly sensitive to environmental change as the expansion

of environmental degradation is responsible for interrupting human development. He

defines human security as the freedom from risk of loss or damage of (any element)

9
that is important for survival and well-being (Mathew 2010). In terms of this papers

research question, human security is relevant to environmental health as it describes the

individual right of ones access to environmentally produced resources without being

disturbed or interrupted by foreign influence.

Environmental sustainability is the most ambiguous of the three concepts. The

UN has declared that human progress efforts should be viewed in conjunction with the

three-pronged notion of sustainable development - social, economic, and

environmental (UNDP 2006). Similar to environmental security however, this concept

has yet to be clearly defined, and is rarely described in disassociation from the other

components (Morelli 2011). One notable flaw with the holistic approach to defining

human development is that such absence of any scientific explanation of the individual

concepts impedes the ability of policy framers to be guided by a meaning that focuses

on the root causes of relatable issues (Goodland 1995). Thus, advocates for a more

focused viewpoint of environmental sustainability often refer the concept as the

maintenance of natural capitol (clean water, air quality, and ecosystem health) or the

preservation of environmental assets for the betterment of future generations

(Goodland 1995; Morelli 2011).

To avoid adding to the collection of attempts to (re-)define environmental

security, and to propose a concept which refers particularly to the human wellbeing

aspect of the environment, I propose a two-fold definition of environmental welfare.

First, environmental welfare refers to the capacity of the environment to produce

10
ecosystem services (clean water and air, fertile and sustainable land, and biodiversity

health) that are necessary for human wellbeing. The second part of this

conceptualization refers to the individual ability to sustain ones livelihood through

their access to the environment. The concept of environmental welfare is an appropriate

description of ones dependency on the health of their surrounding natural

environment as well as their access to obtain the ecosystem services it produces. Within

this framework, environmental welfare serves as the mid-point between human welfare

and environmental sustainability as it focuses on the present state of the human

condition as intrinsically linked to the current state of environmental quality.

This conceptualization relates back to the previously illuminated human and

environmental concepts in various ways. It distinguishes the environment as a key

provision for the human condition. In terms of security, a persons environmental

welfare can be disrupted by non-natural influences such as the explanatory variable

recognized in my research question. My definition is relevant to sustainability as the

current state of the environmental welfare will dictate whether future generations will

possess the ability to sustain their wellbeing through access to environmental products.

FDI into REIs

Relative to its dependent counterpart, FDI into REIs variable is easier to quantify.

The World Bank has classified FDI as investment to acquire lasting management in an

enterprise operating in an economy other than that of the investor(World Bank n.d.).

FDI has been cited as beneficial for poor and emerging economies as it often results in

11
the necessary increased capitol, technology spillover, and managerial know-how to

sustain a functional economy (Gray 2002; OECD 2002). This concept acts as the

explanatory variable, but is solely inclusive of investment into resource extraction

industries.

Resource Extraction: Polluting by Nature

This paper maintains that FDI focused in REIs in developing countries results in

a negative impact on environmental welfare. One of the main reasons for this outcome

is due to the intensive polluting elements of extractive operations. In terms of oil, the

extensive drilling involved with the exploration and extraction of fossil fuel reduces

vegetative land, marine and animal life, and creates water contamination. The effects of

which are exacerbated should spills occur (TEEIC n.d.). The negative outcomes of fossil

fuel extraction suffered in Ecuador provides an exemplar to how this type of damage to

the environment directly affects citizen wellbeing. In addition to the virtual, complete

deforestation of its Sierra highlands, oil extraction by foreign industries is responsible

for increased risk of cancer, abortion, dermatitis, fungal infection, headaches, and

nausea and other chronic illness brought on by water contamination (Dabbs 1996).

The repercussions of the widespread water contamination from operations of TEXACO

oil go beyond damage to drinking water says local farmer, Servio Curipoma, who

unknowingly irrigated his crops with the polluted liquid. The result of which was the

complete destruction of the crops his family depended on for income. Additionally,

though this position is not supported by his government, Mr. Curipoma holds the oil

12
industry responsible for the death of both of his parents who went to an early grave

because of lung cancer. We didn't know what consequences it would have on our

health (Caseilli 2011).

The consequences resulting from mining operations are of equal detriment

towards to wellbeing of local populations in poor countries. The constant

environmental degradation of the South Goa region of India serves as a prime example

of how resource dependency reduces not only quality of life, but also the desire

government and worker to protect citizen health. In this country, the extraction of iron

ore has resulted in the accumulation of iron rich clouds which poison the air quality of

neighboring communities. The polluting dust from the emissions settle on nearby crops,

homes, and even schoolhouses. The effect of which is increased risk of chronic lung

diseases including silicosis and lung cancer. However, the Indian citizenry is divided on

this issue. Those who are employed by the mining industry are willing to trade stable

income at the expense of their health. Alexi Sequeria, former Goa environment minister,

describes the situation as, the local in many areas believes that money is God. You and

I may believe he is sacrificing his health but he does not care they will not allow (the

government) to act (Albin-Lackey and Human Rights Watch 2012).

Other human welfare abuses brought on by environmental damage from mining

are felt in the Democratic Republic of the Congo (DRC) and Chile. In the DRC, local

populations have been denied access to clean drinking water due to increased land

degradation which obstructs routes to local wells and rivers from which nearby

13
communities depend on to acquire their drinking water (Amnesty International 2013).

In Chile, mining companies have destroyed numerous water sources by their

exploration methods which communities rely on to sustain their health. This extremely

detrimental approach is supported by the water code set by the Chilean government.

The effected population claims this outcome is representative of the mining industrys

total disregard for citizen access to water. In a letter to the Chilean president, protestors

proclaimed, "We have discovered that there is water in Chile, but that the wall that

separates it from us is called profit (Jarroud 2013).

The existing anecdotal evidence suggests that the FDI into REIs detrimentally

effects the environmental welfare of host countries. However, in the following sections I

will discuss why the governments of many host countries are unable or unwilling to

implement more stringent regulations on MNCs.

Profitability and Exploitation

The importance of natural resources to the global political economy suggests the

ability of developing countries to utilize its resource wealth as a bargaining chip when

negotiating with potential investors (Smarzynska and Wei 2001). However, empirical

research from Ramamurti and Downey et al. demonstrate that the bargaining power of

developing countries has diminished over the past forty years due to the ratification of

coercive economic liberalization treaties coupled with the crushing debt to the IMF

acquired during economic crises of the 1980s and 90s (2010; 2001). Furthermore,

Ramamurti points to the increased influence of MNCs on their home countrys

14
government. Therefore, any potential intent of a home country to apply international

regulations on the operations of MNCs may be rendered futile (2001). This empirical

evidence demonstrates the dependence of developing country on FDI as it pertains to

the necessity of increase revenue to reduce devastating debts and adhere to

international treaties.

Adding to the above paragraph, it is also important to note the role of

international monetary organizations play in determining the freedom of MNCs to

pollute developing countries. Downey et al. (2010) argues that the IMF and World Bank

are exploitive entities. The authors point to the importance of raw materials to the

economic sustainability of rich nations who are the main decision makers of the said

international organizations. The authors claim the structural adjustment programs

imposed on developing countries force them to maintain frequent raw material

exportation. The authors add that developing countries are often coerced into agreeing

to punitive consequences which include paying large insurance claims should the

exportation be disrupted in anyway. As a result, developing nation governments may

feel that regardless of their own motives and interests, they have to use all means

necessary to protect resource extraction activities so as to meet their debt obligations,

ensure continued foreign investment, and minimize conflict with more powerful

nations and institutions (Downey, Bonds, and Clark 2010).

The PHH is another mechanism relevant to the relationship of FDI into REIs and

environmental welfare. Considering that MNCs are agents of profitability, it is logically

15
consistent to conclude that they pursue strategies which facilitate the avoidance of extra

abatement costs. Within the context of the OLI framework1, a pollution haven provides

an ideal location to maximize profitability by cutting the regulatory corners which

require MNCs to pay fines or taxes for excessive pollutant bi-products of their

operations, or provide costly protective technology which reduce the possibility for

accidents. Therefore, the potential to maximize lucrativeness incentivizes MNCs to

relentlessly target developing countries as destinations for investment, and lobby

against governmental regulations which may hinder potential profits.

H1: Developing countries possessing high levels of FDI into REIs will be poor in

environmental welfare.

Institutional determinates

It is important to note that negative impacts on environmental welfare by FDI

have not been felt equally everywhere. A report from the WTO states, The negative

outcomes (of resource extraction) in Equatorial Guinea, Democratic Republic of the

Congo, Angola, and Nigeria are countered by positive development impacts in Brazil,

Columbia, Argentina, Indonesia, Malaysia, and Botswana (Moran 2010). Relevant

arguments have cited the bargaining ability and corruption level of developing

countries as determinates of negative (positive) impacts.

1
OLI framework refers to the economic theory that foreign investor observe Ownership advantages, Location
Advantages, and Internalization advantages prior to investing in a potential host country.

16
 Borrowing from Cole et al., I stress the prominence of corruption as a

determinate of negative environmental consequences from FDI into REIs. A chief

characteristic of corruption is bribery (Transparency International and Revenue Watch

2012). If MNCs are permitted to engage in such a corruptive activity in developing

countries, then state and local political leaders will be deterred from implementing

policy which protects the environmental welfare of the governed. Conversely, countries

with low corruptibility will be more concerned with improving the conditions of their

citizens. This framework suggests that countries with strong democratic institutions

will be less likely to conform to MNC corruptible influence as they are more responsive

to citizen demands then that of their non-democratic counterparts. Democratic-state

leaders are more responsive to the strains of the citizenry because their political future

is dependent on their ability to govern a wide base. Conversely, Autocratic leaders must

only appeal to a minimal amount of constituents; and thus, are more likely to be free

from criticism when accepting corruptible gifts.

H2: Countries with strong democratic institutions perform better in terms

environmental welfare than non-democratic ones.

Research Design

The basic question I intend to answer is what is the effect of FDI into REIs have

on the environmental welfare of host developing countries. I test this question through

a panel analysis of 30 developing countries over the period of 1980-2012. Because this

question centered on the link between human and environmental health, the research

17
design measures both environmental and human health qualities of each country to

describe the dependent variable.

The independent variable is measured by FDI inflows into oil and mineral

extractive industries as a percent of GDP. The data were collected from UNCTADs

World Investment Directory. Due to the scarcity of available data on FDI, I also use oil

and mineral rents as a percentage of GDP as an alternative measurement. The data

extracted from the World Banks, World development indicators database (World

Bank 2005) have a greater temporal and geographic coverage. Admittedly, this

alternative indicator used to observe FDI into REIs functions as a proxy, rather than a

direct measure of the independent variable. However, UNCTAD notes that developing

countries are virtually incapable of possessing necessary technological equipment to

perform efficient resource extraction devoid of foreign assistance (Kraemer and Tulder

2009). It is then appropriate to assume that high levels of exports from the extractive

industries of developing countries indicate the presence of foreign capital in these

industries. The same type of measurement has been used to be Fearon and Laitin (2003)

to demonstrate the resource dependence of developing countries.

The aggregate data featured in my design is meant to be descriptive of

environmental welfare, and is comprised of data from the Human Development

Indicators database and the UNDPs Human Development Index. Since

environmental welfare is a multi-faceted concept, measurements of the environment

derive from World Bank data of terrestrial protected land, Improved water source,

18
CO2 intensity and arable land. The data regarding human welfare stems from the

UNDPs human development index (HDI) value. Terrestrial protected land refers to

government protection of nature reserves or wildlife sanctuaries, protected landscapes,

and areas managed mainly for sustainable use; improved water source indicator

incorporates country percent of population that has access to protected water sources

(such as springs and wells) as well as piped water sources; CO2 intensity describes total

emissions of the chemical; arable land refers to percent of total land under market or

kitchen gardens(World Bank n.d.). HDI value is an index scoring of country

achievement in basic elements of development including a long and healthy life,

knowledge and a decent standard of living (UNDP 2012). These data were chosen

because each measurement is relevant to capturing a facet of environmental welfare:

human health (HDI value), air and water quality (improved water source and CO2

emissions), and land conservation (protected and arable land).

I test the second hypothesis by observing how the independent variable affects

the aspects of the environment in democratic states compared to autocratic ones. This is

measured through data from the Polity IV Projects coding of state democracy level.

Assuming that democratic states are less corruptible than autocratic ones, these data are

necessary to observe what role institutional type plays in determining the extent of

potential impacts of FDI into REIs on environmental welfare.

Findings

19
 The validity of my main hypothesis was upheld by the findings of the research

design. The featured test provides empirical evidence that environmental degradation

and poor quality of health is correlated with high inflows of FDI into REIs. While the

explanatory variable had adverse effects on all environmental welfare components (see

figures 1-10 odd numbers), protected land, arable land, and CO2 intensity

(Figure 1.) appear to be particularly sensitive to FDI into REIs volume. This is most

likely due to the explorative operations utilized by extracting industries which were

discussed previously. The indirect observation of the explanatory variable produced

greater disconcerting results as the negative impacts were exacerbated in almost every

category excluding improved water source.

Surprisingly, my empirical test did not support the second hypothesis.

Excluding improved water source, figures 11-14 show autocracies to perform

exponentially better in terms of environmental welfare than their democratic

counterparts. Figure 14 presents the most alarming reality as autocracies display a

significant increase in HDI value when they possess strong FDI into REIs dependence

while Democracies show a sharp decrease. These findings are alarming given existing

notions which support democratization.

The increased negative effect of FDI into REIs and environmental welfare on

democracies is most likely due to the often direct correlation between democratization

and economic liberalization. In his book, Government and Politics in Africa, William

Tordoff (2002) observes the history of development of the continent. He states that in

20
order to receive the necessary development loans from international monetary

organizations, African states were forced to demonstrate their commitment to

democracy by completely liberalizing their trade with the international community.

They were forced to abandon almost all parastatal enterprises because it was thought

that African governments were too corrupt to control the economic atmosphere. As

such, African states were flooded with foreign private industrial investments into their

markets (Tordoff 2002). It is reasonable to assume that the type of conditional loans

given to democratizing African states which foster FDI is part of a global effort by

international monetary organizations.

Problem for Future Research

The findings of my research analysis provide evidence of how developing

countries can be adversely affected by FDI into REIs. However, the amount available

data regarding the described relationship is disturbingly scarce. The void in data has

been credited by previous authors as a major obstacle which impedes research (Cole,

Elliott, and Fredriksson 2006; Neumayer 2001; Spatareanu 2007; Xing and Kolstad 2002)

One focus of the international community should be the proliferation of statistics

relevant to the overall status of countries environment. Future research will depend on

more available data in order to understand total impacts and root problems of

environmental welfare issues.

Policy Recommendations

21
 The findings of my research demonstrate how a specific type of FDI can

negatively affect human development. This is contrary to a popular notion which points

to FDI as the savior of the developing world. Key policy makers must broaden the focus

of human development efforts to improve the economic circumstances of developing

countries in addition to improving economic stability. While liberalizing trade and

appealing to foreign investors can indeed bring beneficial, economic outcomes, the cost

of doing so must be weighed in contrast to the environmental welfare of host country

citizens. Relevant policy framers should focus efforts on promoting governmental

regulations in developing countries which protect the environment. This

recommendation falls in line with a statement made by President Obama who in his

first address to the UN declared, those wealthy nations that did so much damage to

the environment in the 20th century must accept our obligation to lead Whitehouse.gov

2009).

Conclusion

The purpose of this research design was to observe how FDI into REIs affects the

environmental welfare of developing countries. I argue that MNCs will hold very little

to no regard for the environment of host countries should it present an obstacle in the

way profits, and democratic states are more likely to protect the environmental welfare

of its citizens. Through an observation of 30 countries over 33 years, I find evidence in

support of the former argument, but the latter was not proven correct. In relation to the

22
main research question, these findings imply that increased foreign investment may

result in lower governmental regard to retain a sustainable environment.

These findings are relevant in the global economic context in that they

demonstrate the relationship between the two variables benefits the investor over the

host country. Given the lucrative nature of the resource market, MNCs are not likely to

reduce investment into resource rich developing countries in the near future. My

findings suggest that increased foreign investment into the extractive sector would

exacerbate damage to the integral traits of the environment which are necessary to

maintain human wellbeing. These conclusions are also relevant to current American

Policy, in which foreign aid is meant to accomplish clear objectives such as improving

human development and environmental sustainability while also liberalizing trade in

the developing world. Such an approach may be counterproductive if the U.S supports

increased FDI into REIs within developing countries as the consequences of doing so

could exacerbate problems instead of solving them.

Climate change may be the single factor that makes the future very different,

impeding the continuing progress in human development" (Elliot and Tran 2010). This

statement made from Jeni Klugman, the Director of the Human Development Report

office for the UN demonstrates how international actors tend to view environmental

issues in the context of long term and global repercussions. The basic intent of this

paper is to display the need for policy focus on the intrinsic ties of human welfare and

the environment, and to provide evidence that foreign investment into extractive

23
industries results in a disruption of both elements. However, no matter what

progressive steps will be made tomorrow, the carelessness toward the wellbeing of Mr.

Pirri and his fellow citizens is an attack on their livelihood that was uninvited and

unprovoked. Such injustice will forever stain the planets history. Policy framers

should keep this profound reality in mind before continuing to allow profitability to

transcend human value.

24
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Amnesty International. 2013. Profits and Loss: Mining and Human Rights in Katanga,
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Results

Table 1: Observed countries

Argentina Azerbaijan Bolivia Botswana Brazil

Chad Chile Colombia Ecuador Honduras
India Kazakhstan Mauritania Mexico Morocco
Papua New
Mozambique Nicaragua Nigeria Pakistan Guinea
Peru Philippines South Africa Thailand Trinidad
Tunisia Uganda Venezuela Singapore Swaziland

Figure 1: Scatterplot of the relationship between FDI into REIs and protected land

Figure 2. Scatterplot of the relationship between mineral and oil rents and protected land.

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Figure 3: Scatterplot of the relationship between FDI into REIs and Arable land

Figure 4: Scatterplot of the relationship between mineral and oil rents and arable land.

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Figure 5: Scatterplot of the relationship between FDI in REIs and improved water source

Figure 6: Scatterplot of relationship between Mineral & oil rents and improved water source

Figure 7: Scatterplot of the relationship between FDI in REIs and Co2 intensity

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Figure 8: Scatterplot of the relationship between mineral and oil rents and Co2 intensity

Figure 9: Scatterplot of the relationship between FDI into REIs and HDI value

32
Figure 10: Scatterplot of the relationship between Mineral and Oil rents and HDI value.

Figure 11. Comparison of institutional type and protected land effect

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Figure 12: Comparison of institutional type effect on arable land

Figure 13: Comparison of Institutional type effect on Co2 intensity

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Figure 13: Comparison of Institutional type effect on improved water source

Figure 14: Comparison of Institutional type effect on HDI value

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36