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Foreign Direct Investment, Corruption, and Democracy

13 Pages Posted: 8 Feb 2013  

Aparna Mathur

American Enterprise Institute (AEI)

Kartikeya Singh

PriceWaterhouseCoopers LLP

Date Written: November 3, 2011


This article is the first to show that foreign investors care about economic freedoms, rather than political freedoms, in making decisions about where to locate capital. Hence more democratic countries may receive less Foreign Direct Investment (FDI) flows if economic freedoms are not guaranteed. One reason could be that democratizing developing economies are often unable to push through the kind of economic reforms that investors desire due to the presence of competing political interests. This could potentially explain why countries like China and Singapore that rank poorly on the democracy index but are relatively high on the property rights index do well in terms of FDI inflows.

Keywords: foreign direct investment, spatial econometrics, emerging economies, panel data, democracy, corruption

JEL Classification: F2, C3, C21, C33, F23

Suggested Citation

Mathur, Aparna and Singh, Kartikeya, Foreign Direct Investment, Corruption, and Democracy (November 3, 2011). Applied Economics, Vol. 45, No. 8, 2011. Available at SSRN:

Aparna Mathur (Contact Author)

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202-868-6026 (Phone)


Kartikeya Singh

PriceWaterhouseCoopers LLP ( email )

1301 Avenue of the Americas
New York, NY 10019
United States

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