Democracy and FDI

Matthias Busse

No 26260, Discussion Paper Series from Hamburg Institute of International Economics

Abstract: Many believe that multinational enterprises insensitively ignore political rights and civil liberties in the countries of their investments. Frequently, non-governmental organisations accuse multinationals of fostering repressive regimes in developing countries and consider foreign direct investment (FDI) as a tool of exploitation. This paper tries to examine empirically the complex relationship between democracy and FDI in a systematic way, using cross-sectional and panel data analysis. The results indicate that - on average - investments by multinationals are significantly higher in democratic countries, thereby refuting the hypothesis that political repression fosters FDI. Yet this positive link does not hold for the 1970s, when a considerable share of FDI flowed to countries with repressive regimes.

Keywords: Political; Economy (search for similar items in EconPapers)
Pages: 31
Date: 2003
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:hwwadp:26260

DOI: 10.22004/ag.econ.26260

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