Natural Resources in emerging markets: international business and co-evolutionary institutional change

Natural resources have always played an important role for economic development. In the future, we can expect natural resources to become even more important (see e.g. rare earths) and its industries to become even more dynamic with innovations and technological change. The prospected ‘greening’ of economic activity will further shake up natural resource industries in ways that are as yet still unknown – these challenges will demand ability to constantly adjust and transform and open new opportunities for profitable economic activity. If less developed economies with a rich endowment of natural resources are to benefit from these changes, then they need a safe and stable political and institutional framework, as well as access to technology and capital, which exemplifies the particular role of foreign investors. This assigns a special responsibility to regulators of foreign investors in their home countries. The two interrelated aspects of access to capital and technology as well as the development of effective institutions form the overarching leitmotiv of the research programme.

The availability of natural resources can be a positive condition for economic development: Investments in the extraction, refinement and processing of natural resources as well as the associated technological development have the potential to structurally transform economies so that long-term economic development can occur. However, this is by no means guaranteed: The scientific hypothesis of the so-called resource curse is based not only on policy failures, weaknesses in market-founding and market-protecting institutions, or corruption, but also on economic regularities (such as the "Dutch disease", price fluctuations, the often low degree of interconnectedness of the resource economy with other economic sectors) as well as market failures (such as externalities for the environment or the market's ability to reflect the temporal dimension of finite resources). The conditions of internationalisation, at the level of multinational companies and at the level of bilateral and multilateral trade and resource policies, also have a particular influence on the opportunities and risks for catch-up development in resource-rich economies. This gives rise to interesting scientific questions that are orientated towards market conditions and the quality of institutions in resource-rich countries.

Foreign direct investors (i.e. investors with a long-term interest in the investment and the control of this investment) are often highlighted as being particularly important for developing countries. In addition to direct positive economic effects (employment, investment, capital, competition, internationalization, etc.), they also often effet indirect technology effects (intentional or as spillovers) and thus improve the quality of the innovation systems in the host country's economy.
The analysis of whether and, above all, under what conditions such effects will actually take place and be conducive to economic development of the hosting country or region is an exciting field of research that is the subject to some controversial debate.

In many cases, it is assumed that the economic exploitation of natural resources, for example, can primarily be achieved through foreign direct investment. This is typically attributed to insufficient technology and internationalization of domestic industry. The extent to which foreign companies can make a positive contribution to development ultimately depends on the quality of institutions in the resource-rich host country.

Furthermore, foreign direct investors are ascribed a decisive role in the fulfillment of the Sustainable Development Goals (SDGs) (most prominently in UNCTAD's World Investment Report from 2014). Here, too, it is essentially the quality of the institutional structure in the host country that determines whether foreign investments will be able to promote such goals. Research hence searches for the conditions under which foreign investors have an intrinsic motivation to promote the establishment of institutions that are conducive to development in the host country in terms of the SDGs. In fact, international business theories provide convincing reasons for such a motivation. Here and here.

The fact that the Chinese economy has been growing stronger for decades now presents particular opportunities and challenges for the international economy as a whole. The previous system of a global multilateral paradigm around the Washington institutions of the World Bank and International Monetary Fund as well as the UN was characterized by a type of governance in which all countries, albeit under the leadership of the USA, could at least have a certain share of their own. It is also subject to the prerogative of market economy conditions.
China's policy of economic internationalization in recent years, in particular the linking of international economic relations with non-market strategies (e.g. "one belt one road" or "new Silk Road", development policy via infrastructure investments linked to the acquisition of natural resources, the Asian Infrastructure Investment Bank / AIIB, globally active Chinese companies with close ties to the state, etc.) indicate the awakening of a new era. Research in this area focuses on the current situation and discusses theory- or model-based forecasts about possible futures of international economic relations. See, for example, the "The "Regional Comprehensive Economic Partnership" (RCEP).
The professorship pays particular attention to international trade in natural resources. Many natural resources are critical in the sense that their supply is fraught with risk, which is currently increasing with the decreasing market orientation of global trade. This applies, for example, to the so-called "rare earths", which are used in information technology and in the expansion of energy supply through renewable energy sources, as well as the energy carriers crude oil and natural gas. The analysis of international resource policy focuses on the economic effects that can be expected from strategic behavior on the resource markets. With China and Russia currently important trading partners for Germany, geopolitical and security policy aspects are increasingly being added.
An international resource policy aimed at securing the supply of natural resources necessary to maintain the competitiveness of the German economy is only sustainable if it takes into account the interests of all countries involved. Today in particular, it is clear that economic criteria can also be subordinated to political interests. The conditions of international resource policy have already changed fundamentally in recent decades, not least due to the increasing demand for raw materials from new players, such as the emerging markets in particular.
The institution of the World Trade Organization with its dispute settlement body is still the final authority in the multilateral system of world trade. Fundamental changes are emerging here and analyzing the conditions of this change and its economic effects is an exciting field of research: What is the future role of the Asian Infrastructure Investment Bank AIIB? Will it be able to change the structures of international resource policy? What effects would an expansion of economic sanctions via the instruments of the World Trade Organization have?