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FDI Waves, Waves of Neglect of Political Risk

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  • Méon, Pierre-Guillaume
  • Sekkat, Khalid

Abstract

Studies of the impact of local political risk on foreign direct investment inflows overlook that worldwide FDI comes in waves. Using a simple model we show that the impact of political risk on FDI inflows is likely to be weaker, the larger the worldwide amount of FDI, which may question standard estimates and their policy implications. Using a large sample of developing and developed economies, we estimate the sensitivity of the distribution of FDI inflows across countries, to the local political risk. We find that it is a decreasing function of the worldwide amount of FDI. This finding has been upheld after many robustness checks.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 11 ()
Pages: 2194-2205

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:11:p:2194-2205

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Web page: http://www.elsevier.com/locate/worlddev

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Keywords: foreign direct investment; institutions; political risk; governance;

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Citations

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Cited by:
  1. Marek Dabrowski & Luc DeWulf, 2013. "Economic Development, Trade and Investment in the Eastern and Southern Mediterranean Region," CASE Network Reports 0111, CASE-Center for Social and Economic Research.
  2. Schmaljohann, Maya, 2013. "Enhancing Foreign Direct Investment via Transparency? Evaluating the Effects of the EITI on FDI," Working Papers 538, University of Heidelberg, Department of Economics.
  3. Khalid Sekkat, 2012. "Manufactured Exports and FDI in the MED-11 Countries: Recent Evolution, Determinants and Prospects," CASE Network Studies and Analyses 432, CASE-Center for Social and Economic Research.
  4. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI: A gravity analysis of European investment to Middle East and North Africa," Working Papers hal-00985795, HAL.
  5. Burger, Martijn & Ianchovichina, Elena & Rijkers, Bob, 2013. "Risky business : political instability and greenfield foreign direct investment in the Arab world," Policy Research Working Paper Series 6716, The World Bank.
  6. Kamel ABDELLAH ( GREThA, CNRS, UMR 5113 & ISG, UNIVERSITE DE TUNIS) & Dalila NICET-CHENAF (GREThA, CNRS, UMR 5113) & Eric ROUGIER (GREThA, CNRS, UMR 5113), 2012. "FDI and macroeconomic volatility: A close-up on the source countries," Cahiers du GREThA 2012-21, Groupe de Recherche en Economie Théorique et Appliquée.
  7. Schmaljohann, Maya, 2013. "Enhancing Foreign Direct Investment via Transparency? Evaluating the Effects of the EITI on FDI," Working Papers 0538, University of Heidelberg, Department of Economics.

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