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FDI waves, waves of neglect of political risk

  • Pierre-Guillaume Méon
  • Khalid Sekkat

Many studies have underlined the detrimental impact of local political risk on foreign direct investment inflows. In this paper, we argue that that relationship depends on the global volume of FDI. After providing a simple model and theoretical arguments suggesting that the relationship should be weaker when there is more FDI worldwide, we observe, in a large sample of countries, that the sensitivity of the distribution of FDI inflows to local political risk is indeed a decreasing function of the world FDI to GDP ratio in a given year. This finding survives a battery of robustness checks.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 10-004.RS.

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Length: 35 p.
Date of creation: 2010
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:10-004
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