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

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  • Assi Okara

    (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

This paper investigates the potential of Foreign Direct Investment (FDI) to counter socio-political instability, one of the most pressing challenges faced by developing countries. Socio-political (in)stability is approached from an institutional perspective and linked to one particular type of FDI, greenfield FDI, for its more direct socio-economic externalities and their influences on greed and grievance. The issue of causality is primarily addressed using a gravity-based instrumental variable for FDI, taking advantage of bilateral greenfield projects data. The empirical results using data over the period 2003-2017 for a large sample of developing countries show that FDI favors institutional development not only in terms of overall socio-political stability but also human rights compliant socio-political stability. The results are robust to a range of specifications and alternative identification strategies, as well as to a series of sensitivity tests. Overall, this study highlights the promotion of political stability as another channel through which FDI can contribute to development.

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  • Assi Okara, 2022. "Does Foreign Direct Investment Promote Political Stability ? Evidence from Developing Economies," Working Papers hal-03617085, HAL.
    • Handle: RePEc:hal:wpaper:hal-03617085
    Note: View the original document on HAL open archive server: https://hal.science/hal-03617085
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    Greenfield FDI; institutions; political stability; developing countries;
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