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When FDI Flows from Rich to Poor Countries: Does Democracy Matter?

LLEE Working Paper No. 38

35 Pages Posted: 17 Dec 2006  

Selen Sarisoy Guerin

Centre for European Policy Studies (CEPS)

Stefano Manzocchi

Luiss University - Department of Economics

Date Written: 2006

Abstract

We model the effect of democracy on North-South bilateral foreign direct investment (FDI), and test its impact in a panel of 14 source countries and 24 host countries over 1992-2004. As a benchmark, we adopt a setup that combines variables commonly associated with horizontal FDI (economic dimension of the countries; distance) and variables associated with vertical FDI (per capita income as a proxy for capital endowments). Democracy in the host country has a positive effect of North-South FDI flows, especially when we control for privatization programs. As for the type of democracy, a parliamentary regime could have a positive impact on FDI inflows vis-a-vis a presidential one.

Keywords: Foreign direct investment, democracy

JEL Classification: F21, P0

Suggested Citation

Guerin, Selen Sarisoy and Manzocchi, Stefano, When FDI Flows from Rich to Poor Countries: Does Democracy Matter? (2006). Available at SSRN: https://ssrn.com/abstract=951949 or http://dx.doi.org/10.2139/ssrn.951949

Selen Sarisoy Guerin (Contact Author)

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres
Brussels, 1000
Belgium
+32 2 229 3923 (Phone)
+32 2 219 4151 (Fax)

HOME PAGE: http://www.ceps.be

Stefano Manzocchi

Luiss University - Department of Economics ( email )

Viale Pola, 12
Rome, 00198
Italy

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