Democracy and FDI
No 220, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)
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: FDI; Democracy; Political Rights; Civil Liberties (search for similar items in EconPapers)
JEL-codes: F21 F23 C31 C33 (search for similar items in EconPapers)
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Working Paper: Democracy and FDI (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwadp:26260
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