Democratic transitions can attract foreign direct investment: Effect, trajectories, and the role of political risk

Jean Lacroix, Pierre-Guillaume Méon and Khalid Sekkat

Journal of Comparative Economics, 2021, vol. 49, issue 2, 340-357

Abstract: Using a difference-in-differences method on a panel of 115 developing countries from 1970 to 2014, we find that democratic transitions do not affect foreign direct investment (FDI) inflows, on average. However, consolidated democratic transitions, i.e. transitions that do not go into reverse for at least five years, increase FDI inflows, with the bulk of the improvement appearing 10 years after the transition. Furthermore, when controlling for political risk, the effect of consolidated democratic transitions appears immediately after they have occurred, suggesting that higher political risk in the early years of the new regime offsets their positive intrinsic effect on FDI.

Keywords: FDI; Democratic transitions; Institutions; Development; Political risk (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Working Paper: Democratic transitions can attract foreign direct investment: Effect, trajectories, and the role of political risk (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:49:y:2021:i:2:p:340-357

DOI: 10.1016/j.jce.2020.09.003

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