Political Risk, Institutions and Foreign Direct Investment

28 Pages Posted: 21 Apr 2005

See all articles by Matthias Busse

Matthias Busse

Ruhr-University Bochum

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

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

Matthias Busse (Contact Author)

Ruhr-University Bochum ( email )

Faculty of Management and Economics, GC 3/145
D-44780 Bochum, DE 44780
Germany

Carsten Hefeker

HWWA Institute of International Economics ( email )

Heimhuder Strasse 71
20347 Hamburg, DE Hamburg 20148
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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