The Influence of Democratic Electoral Processes on Inflows of Foreign Direct Investment

James R. Martin
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James R. Martin: Creighton University

Journal of Economic Insight, 2021, vol. 47, issue 2, 1-26

Abstract: This paper examines the influence of democratic politics on a critical component of modern economies: inflows of foreign direct investment (FDI). Scholars suggest that the principals of corporations prefer to invest in companies in democracies than within authoritarian regimes; however, variance does occur across democracies. I pose a simple question: what is it about democracy that influences inflows of foreign direct investment? I explore the argument that the ebb and flow of domestic politics (in the form of national level elections and government formations) may play a role. Using time series data from democracies around the world, I find that while the timing of a legislative or presidential election does not appear to directly influence inflows of foreign direct investment, their outcomes may: lengthy government formations may be associated with greater increases in FDI, as are left and centrist prime ministers. Finally, politically polarized legislatures seem to discourage investors.

JEL-codes: F21 F37 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mve:journl:v:47:y:2021:i:2:p:1-26

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