Democracy and FDI

Many believe that multinational enterprises insensitively ignore political rights and civil liberties in the countries of their investments. Frequently, non-governmental organisations 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.

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Publication Type:
Working or Discussion Paper
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JEL Codes:
C31; C 33; F21; F23
Series Statement:
HWWA Discussion Paper 220

 Record created 2017-04-01, last modified 2018-01-22

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