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The Effect of Outliers on Regression Analysis: Regime Type and Foreign Direct Investment

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  • Choi, Seung-Whan

Abstract

The presence of outliers and influential cases can dramatically change the magnitude of regression coefficients and even the direction of coefficient signs (i.e., from positive to negative or vice versa). When researchers ignore abnormal observations, especially with respect to dependent variables, their empirical results can be misleading. Unfortunately, the fact remains underappreciated in studies of political science. To expound upon the outlier issue, I reexamine an empirical study that reports on two opposing effects of democratic institutions on inflows of foreign direct investment (FDI). In doing so, I illustrate the way influential outliers can drastically affect the substantive results of regression analysis. After properly reanalyzing outlying countries, I conclude that democratic countries attract more FDI than authoritarian countries.

Suggested Citation

  • Choi, Seung-Whan, 2009. "The Effect of Outliers on Regression Analysis: Regime Type and Foreign Direct Investment," Quarterly Journal of Political Science, now publishers, vol. 4(2), pages 153-165, July.
    • Handle: RePEc:now:jlqjps:100.00008021
    DOI: 10.1561/100.00008021
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    Cited by:

    1. Stéphane Mussard & Fattouma Souissi-Benrejab, 2019. "Gini-PLS Regressions," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(3), pages 477-512, September.
    2. Rodolphe Desbordes & Vincenzo Verardi, 2017. "Foreign Direct Investment and Democracy: A Robust Fixed Effects Approach to a Complex Relationship," Pacific Economic Review, Wiley Blackwell, vol. 22(1), pages 43-82, February.
    3. Jean Lacroix & Pierre-Guillaume Méon & Khalid Sekkat, 2017. "Do democratic transitions attract foreign investors and how fast?," Working Papers CEB 17-006, ULB -- Universite Libre de Bruxelles.
    4. Basu, Debarati & Mitra, Shabana & Purohit, Archana, 2023. "Does effective democracy explain MNE location choice?: Attractiveness to FDI and cross-border M&As," Journal of Business Research, Elsevier, vol. 167(C).
    5. Gerdin, Jonas & Johansson, Tobias & Wennblom, Gabriella, 2019. "The contingent nature of complementarity between results and value-based controls for managing company-level profitability: A situational strength perspective," Accounting, Organizations and Society, Elsevier, vol. 79(C).

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