Political Risk, Institutions and Foreign Direct Investment

Busse, Matthias; Hefeker, Carsten

doi:10.2139/ssrn.704283

Political Risk, Institutions and Foreign Direct Investment

HWWA Discussion Paper No. 315

28 Pages Posted: 21 Apr 2005

See all articles by Matthias Busse

Carsten Hefeker

HWWA Institute of International Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: April 2005

Abstract

The paper explores the linkages between political risk, institutions and foreign direct investment inflows. Using different econometric techniques for a data sample of 83 developing countries and the period 1984 to 2003, we identify those indicators that matter most for the activities of multinational corporations. Overall, 12 different indicators for political risk and institutions are employed in the empirical analysis. The results show that government stability, the absence of internal conflict and ethnic tensions, basic democratic rights and ensuring law and order are highly significant determinants of foreign investment inflows.

Keywords: Political risk, institutions, FDI, multinational corporations

JEL Classification: C31, C33, F21, F23

Suggested Citation: Suggested Citation

Busse, Matthias and Hefeker, Carsten, Political Risk, Institutions and Foreign Direct Investment (April 2005). HWWA Discussion Paper No. 315. Available at SSRN: https://ssrn.com/abstract=704283 or http://dx.doi.org/10.2139/ssrn.704283