Democracy and FDI
31 Pages Posted: 15 Jul 2003
Date Written: 2003
Many believe that multinational enterprises insensitively ignore political rights and civil liberties in the countries of their investments. Frequently, non-governmental organizations 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
JEL Classification: C31, C33, F21, F23
Suggested Citation: Suggested Citation