Multinational firms and the extractive sectors in the 21st century: Can they drive development?

Rajneesh Narula

#2017-041

Historically, extractive sector MNEs have been seen as an obstacle to sustainable development, because they operated in enclaves with limited local engagement. Import-substitution policies aimed to increase the local benefits of these resources, restricting FDI. Since liberalisation, extractive MNEs have re-engaged with developing countries through looser governance structures with greater potential for linkages. Despite the potential, few host countries have seen meaningful MNE-led development because of weak domestic firms and poor location advantages. New MNEs from emerging economies have not shown a greater propensity to local linkages. Only countries that have continued to invest in location advantages have seen substantial benefits.

Acknowledgements: I would like to thank Ana Botella of the University of Valencia for her research assistance and comments on the various drafts. I am also indebted to Grazia Santangelo, Daniel Shapiro, Elisa Giuliani and Lou Anne Barclay for their insightful feedback.

Keywords: sustainable development, MNEs, linkages, emerging economies, extractives, natural resources, infrastructure, enclaves.

JEL Classification: F23, F63, F54