Does Foreign Direct Investment Promote Political Stability? Evidence from Developing Economies

Assi Okara

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Abstract: Socio-political instability remains a threat to development. While concerns are often raised regarding the role foreign investors play in perpetuating this threat, empirical evidence on FDI's internal political effects is scarce and presents mixed results. In line with the literature on the determinants of political risk, this paper posits that by generating economic opportunities, FDI promotes political stability. Unlike the extant literature, which considers overall FDI, I test this hypothesis by focusing on greenfield FDI, given its greater socioeconomic externalities resulting from directly generated new economic activity and jobs. While this literature focuses on armed conflicts, socio-political stability in this paper is approached from an institutional perspective. Based on a large sample of developing countries and instrumental variable techniques, the results show that FDI fosters socio-political stability. Accounting for political repression, the results also highlight that FDIinduced stability is compatible with governmental respect for human rights, thus preserving individual well-being.

Keywords: Greenfield FDI; institutions; political stability; developing countries (search for similar items in EconPapers)
Date: 2023-02-27
New Economics Papers: this item is included in nep-int
Note: View the original document on HAL open archive server: https://uca.hal.science/hal-04093330v1
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Citations: View citations in EconPapers (2)

Published in Economic Modelling, 2023, ⟨10.1016/j.econmod.2023.106249⟩

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Journal Article: Does foreign direct investment promote political stability? Evidence from developing economies (2023)
Working Paper: Does Foreign Direct Investment Promote Political Stability ? Evidence from Developing Economies (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04093330

DOI: 10.1016/j.econmod.2023.106249

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