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Democracy and foreign direct investment at the industry level: evidence for US multinationals

David Kucera () and Marco Principi

Review of World Economics (Weltwirtschaftliches Archiv), 2014, vol. 150, issue 3, 595-617

Abstract: Theories of multinational enterprises emphasize that foreign direct investment (FDI) is undertaken in different industries for different reasons, yet studies of the effects of democracy on FDI most commonly use aggregate-level FDI data. This paper evaluates US FDI outflows to 15 industries (eight manufacturing, seven nonmanufacturing) in 54 countries in a linear dynamic panel-data gravity FDI model using a “system” generalized method of moments estimator and three widely used democracy indicators. At the aggregate-level, we estimate a positive effect of democracy on FDI, consistent with most prior studies. At the industry level, we estimate larger positive effects of democracy on FDI for service than manufacturing industries, particularly for finance and insurance and information, and negative effects for mining and oil and gas extraction. Copyright Kiel Institute 2014

Keywords: Democracy; Foreign direct investment; Natural resources; D72; F23; J51 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:spr:weltar:v:150:y:2014:i:3:p:595-617