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Democracy and foreign direct investment at the industry level: evidence for US multinationals

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  • David Kucera
  • Marco Principi

Abstract

Theories of multinational enterprises emphasize that foreign direct investment (FDI) is undertaken in different industries for different reasons, yet studies of the effects of democracy on FDI most commonly use aggregate-level FDI data. This paper evaluates US FDI outflows to 15 industries (eight manufacturing, seven nonmanufacturing) in 54 countries in a linear dynamic panel-data gravity FDI model using a “system” generalized method of moments estimator and three widely used democracy indicators. At the aggregate-level, we estimate a positive effect of democracy on FDI, consistent with most prior studies. At the industry level, we estimate larger positive effects of democracy on FDI for service than manufacturing industries, particularly for finance and insurance and information, and negative effects for mining and oil and gas extraction. Copyright Kiel Institute 2014

Suggested Citation

  • David Kucera & Marco Principi, 2014. "Democracy and foreign direct investment at the industry level: evidence for US multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(3), pages 595-617, August.
    • Handle: RePEc:spr:weltar:v:150:y:2014:i:3:p:595-617
    DOI: 10.1007/s10290-013-0183-0
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    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.
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    5. Lee, Hui Shan & Cheng, Fan Fah & Chong, Shyue Chuan & Sia, Bik Kai, 2018. "Influence of Macroeconomics Factors and Legal Stability to the Insurance Growth in the ASEAN-5 Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(2), pages 219-229.
    6. Munjal, Surender & Varma, Sumati & Bhatnagar, Ankur, 2022. "A comparative analysis of Indian and Chinese FDI into Africa: The role of governance and alliances," Journal of Business Research, Elsevier, vol. 149(C), pages 1018-1033.
    7. International Organisation, 2017. "Handbook on Assessment of Labour Provisons in Trade and Investment Arrangements," Working Papers id:11929, eSocialSciences.
    8. Tag, Mehmet Nasih & Degirmen, Suleyman, 2022. "Economic freedom and foreign direct investment: Are they related?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 737-752.
    9. Sargis Karavardanyan, 2022. "Short-Term Harm, Long-Term Prosperity? Democracy, Corruption and Foreign Direct Investments in Sino-African Economic Relations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 417-486, September.
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    More about this item

    Keywords

    Democracy; Foreign direct investment; Natural resources; D72; F23; J51;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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