Foreign Direct Investment, Corruption, and Democracy
13 Pages Posted: 8 Feb 2013
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: Suggested Citation