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FDI Waves, Waves of Neglect of Political Risk

  • Pierre-Guillaume Méon
  • Khalid Sekkat

Studies of the impact of local political risk on foreign direct investment inflows overlook that worldwide FDI comes in waves. Using a simple model we show that the impact of political risk on FDI inflows is likely to be weaker, the larger the worldwide amount of FDI, which may question standard estimates and their policy implications. Using a large sample of developing and developed economies, we estimate the sensitivity of the distribution of FDI inflows across countries, to the local political risk. We find that it is a decreasing function of the worldwide amount of FDI. This finding has been upheld after many robustness checks.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/132815.

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Date of creation: Nov 2012
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Publication status: Published in: World development (2012) v.40 n° 11,p.2194-2205
Handle: RePEc:ulb:ulbeco:2013/132815
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