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Does Foreign Direct Investment Promote Political Stability? Evidence from Developing Economies

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  • Assi Okara

    (African Development Bank Group, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)

Abstract

Socio-political instability remains a threat to development. While concerns are often raised regarding the role foreign investors play in perpetuating this threat, empirical evidence on FDI's internal political effects is scarce and presents mixed results. In line with the literature on the determinants of political risk, this paper posits that by generating economic opportunities, FDI promotes political stability. Unlike the extant literature, which considers overall FDI, I test this hypothesis by focusing on greenfield FDI, given its greater socioeconomic externalities resulting from directly generated new economic activity and jobs. While this literature focuses on armed conflicts, socio-political stability in this paper is approached from an institutional perspective. Based on a large sample of developing countries and instrumental variable techniques, the results show that FDI fosters socio-political stability. Accounting for political repression, the results also highlight that FDIinduced stability is compatible with governmental respect for human rights, thus preserving individual well-being.

Suggested Citation

  • Assi Okara, 2023. "Does Foreign Direct Investment Promote Political Stability? Evidence from Developing Economies," Post-Print hal-04093330, HAL.
    • Handle: RePEc:hal:journl:hal-04093330
    DOI: 10.1016/j.econmod.2023.106249
    Note: View the original document on HAL open archive server: https://uca.hal.science/hal-04093330v1
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    Cited by:

    1. Zouhaier Aloui & Samir Maktouf, 2024. "The Impact of Foreign Direct Investment and Political Stability on Food Security: Evidence from Sub-Saharan African Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 66(2), pages 289-328, June.
    2. André Arnaud ENGUENE & Romaric Armel WEPAGUIEWE & Ouedraogo IDRISSA, 2025. "The dual effect of (Extractive) foreign direct investment on institutional quality in sub-Saharan Africa," SN Business & Economics, Springer, vol. 5(11), pages 1-29, November.
    3. Muhammad Bahar Khan & Imran Naseem & Ahmad Hamidi & Mohd Khata Jabor & Nur Fatihah Abdullah Bandar & Khalid Zaman, 2024. "Strategic Influence in Focus: Assessing the Roles of Defense Expenditures, Foreign Capital, Political Stability, and Energy Sustainability in Geopolitical Dynamics," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 476-483, November.
    4. Serkan Eti & Serhat Yüksel & Hasan Dinçer & Yaşar Gökalp & Hakan Yıldız & Edanur Ergün & Merve Acar, 2026. "Machine learning-enhanced fuzzy framework for prioritizing financial risk management techniques in renewable energy projects," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 12(1), pages 1-28, December.
    5. Sargis Karavardanyan, 2025. "Corruption, economic globalization, and protests: theory and evidence for short- and long-term mechanisms," SN Business & Economics, Springer, vol. 5(6), pages 1-33, June.
    6. Manh Huu Nguyen & Giang Thi Huong Vuong & Trung Duc Nguyen, 2025. "Corporate Investment and Political Stability: Role of an Enormous Anti-Corruption Campaign, Ownership Structure, and Financial Constraints in An Emerging Economy," SAGE Open, , vol. 15(2), pages 21582440251, June.
    7. Liis Roosaar & Jaan Masso & Rasmus Bøgh Holmen, 2025. "The effects of foreign acquisitions on wages: how the country of origin matters," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 59(1), pages 1-23, December.
    8. Shao, Hanhua & Wang, Yaning & Lee, Chien-Chiang & Wen, Huwei, 2024. "How does political stability affect renewable energy finance? International evidence," Energy, Elsevier, vol. 313(C).
    9. Bambe, Bao-We-Wal & Ouedraogo, Adama, 2025. "Public expenditure efficiency and foreign direct investment in developing countries," IDOS Discussion Papers 16/2025, German Institute of Development and Sustainability (IDOS).
    10. Deniz Oktay, 2026. "The Political Economy of FDI: Does Regime Type Really Matter?," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 18(1), pages 7-28, January.
    11. Alemayehu Geda & Addis Yimer, 2024. "What Drives Foreign Direct Investment into Africa? Insights from a New Analytical Classification of Countries as Fragile, Factor-Driven, or Investment-Driven," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14199-14234, September.
    12. Peter Mwai Kinuthia & Issacs K Kemboi & James Onyango & Muyiwa Samuel Adaramola, 2025. "Renewable Energy Consumption and Carbon Emissions in Sub-Saharan Africa. The Moderating Role of Institutional Quality," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(5), pages 4257-4270, May.
    13. Yongming Huang & Mohammad Jalal Uddin, 2025. "Does Globalisation and Financial Development Promote Renewable Energy Transitions in ASEAN Countries?—An Empirical Revisit," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 12(3), September.

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