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Democracy and FDI

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  • Busse, Matthias

Abstract

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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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 220.

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Date of creation: 2003
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Handle: RePEc:zbw:hwwadp:26260

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Web page: http://www.econstor.eu/handle/10419/20
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Keywords: FDI; Democracy; Political Rights; Civil Liberties;

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References

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  1. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 82, July.
  2. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 565, C.E.P.R. Discussion Papers.
  3. Philipp Harms & Heinrich W. Ursprung, 2002. "Do Civil and Political Repression Really Boost Foreign Direct Investments?," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 40(4), pages 651-663, October.
  4. John F. Helliwell, 1992. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
  5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  6. Gary Clyde Hufbauer & Kimberly Ann Elliott & Tess Cyrus & Elizabeth Winston, 1997. "US Economic Sanctions: Their Impact on Trade, Jobs, and Wages," Working Paper Series, Peterson Institute for International Economics Working Paper Special (2), Peterson Institute for International Economics.
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Cited by:
  1. McCann, Fergal & Dorsch, Michael & McGuirk, Eoin, 2011. "Democratic Accountability and the Relative Obstacles to Foreign Investment," Proceedings of the German Development Economics Conference, Berlin 2011 56, Verein für Socialpolitik, Research Committee Development Economics.
  2. Alessandro Maffei & Nikolai Raabe & Heinrich W. Ursprung, 2006. "Political Repression and Child Labour: Theory and Empirical Evidence," The World Economy, Wiley Blackwell, vol. 29(2), pages 211-239, 02.
  3. Faruk Aydin & Hulya Saygili & Mesut Saygili & Gokhan Yilmaz, 2010. "Dis Ticarette Kuresel Egilimler ve Turkiye Ekonomisi," Working Papers 1001, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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