Membership Has its Privileges – The Effect of Membership in International Organizations on FDI

Dreher, Axel; Mikosch, Heiner; Voigt, Stefan

doi:10.2139/ssrn.1694994

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Membership Has its Privileges – The Effect of Membership in International Organizations on FDI

CEGE Discussions Paper No. 114

46 Pages Posted: 22 Oct 2010

See all articles by Axel Dreher

Heiner Mikosch

ETH Zürich - KOF Swiss Economic Institute

Stefan Voigt

University of Hamburg - Institute of Law & Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 20, 2010

Abstract

We argue that membership in International Organizations (IOs) is an important determinant of FDI inflows. To the extent that membership restricts a country from pursuing policies that are harmful to investors, it can signal low political risk. Using data over the 1971-2005 period, we find that membership in IOs does indeed increase inflows of FDI. Controlling for the endogeneity of membership, we find this effect to be substantively important and robust to the method of estimation.

Keywords: Membership in International Organizations, FDI, Investment Climate, Political Risk, Signaling, Separating Equilibrium

JEL Classification: F02, F21, H11, K33, P26

Suggested Citation: Suggested Citation

Dreher, Axel and Mikosch, Heiner and Voigt, Stefan, Membership Has its Privileges – The Effect of Membership in International Organizations on FDI (October 20, 2010). CEGE Discussions Paper No. 114, Available at SSRN: https://ssrn.com/abstract=1694994 or http://dx.doi.org/10.2139/ssrn.1694994