Political Regime and Vertical vs. Horizontal FDI

Luiss Lab of European Economics Working Paper No. 49

29 Pages Posted: 24 Jul 2007  

Selen Sarisoy Guerin

Centre for European Policy Studies (CEPS)

Stefano Manzocchi

Luiss University - Department of Economics

Date Written: July 2007

Abstract

We introduce the effect of the political regime in a model of North-South bilateral foreign direct investment (FDI), and test whether it matters for the nature of FDI inflows to emerging markets. Alternative political regimes in the host country may affect the incentive for foreign investors to implement horizontal rather than vertical FDI, if the political expropriation risk is different for the two kinds of investment. We test the model in a panel of 14 source countries and 24 host countries over 1992-2004, and find that autocracies are likely to receive relatively more FDI of the vertical type, while democracies are more likely to be associated with horizontal FDI inflows.

Keywords: Democracy, Political regime, FDI, Expropriation

JEL Classification: F15, F23, H11, P51

Suggested Citation

Guerin, Selen Sarisoy and Manzocchi, Stefano, Political Regime and Vertical vs. Horizontal FDI (July 2007). Available at SSRN: https://ssrn.com/abstract=1002593 or http://dx.doi.org/10.2139/ssrn.1002593

Selen Sarisoy Guerin (Contact Author)

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres
Brussels, 1000
Belgium
+32 2 229 3923 (Phone)
+32 2 219 4151 (Fax)

HOME PAGE: http://www.ceps.be

Stefano Manzocchi

Luiss University - Department of Economics ( email )

Viale Pola, 12
Rome, 00198
Italy

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