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FDI Waves, Waves of Neglect of Political Risk

Author

Listed:
  • Pierre-Guillaume Méon
  • Khalid Sekkat

Abstract

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.

Suggested Citation

  • Pierre-Guillaume Méon & Khalid Sekkat, 2012. "FDI Waves, Waves of Neglect of Political Risk," ULB Institutional Repository 2013/132815, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/132815
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    Cited by:

    1. Vithessonthi, Chaiporn, 2016. "Capital investment, internationalization, and firm performance: Evidence from Southeast Asian countries," Research in International Business and Finance, Elsevier, vol. 38(C), pages 393-403.
    2. Arif, Asma & An, Pengli & Qi, Yajie & Li, Huajiao & An, Haizhong & Hussain, Mujahid & Wang, Yanli, 2021. "The influence factors of the national roles in the FDI network: A combined methods of complex networks and Panel Data Analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 563(C).
    3. Burger, Martijn & Ianchovichina, Elena & Rijkers, Bob, 2013. "Risky business : political instability and greenfield foreign direct investment in the Arab world," Policy Research Working Paper Series 6716, The World Bank.
    4. Fujii, Hidemichi & Managi, Shunsuke, 2015. "Optimal production resource reallocation for CO2 emissions reduction in manufacturing sectors," MPRA Paper 64703, University Library of Munich, Germany.
    5. repec:awi:wpaper:538 is not listed on IDEAS
    6. Elena Ianchovichina & Maros Ivanic, 2016. "Economic Effects of the Syrian War and the Spread of the Islamic State on the Levant," The World Economy, Wiley Blackwell, vol. 39(10), pages 1584-1627, October.
    7. Schmaljohann, Maya, 2013. "Enhancing Foreign Direct Investment via Transparency? Evaluating the Effects of the EITI on FDI," Working Papers 0538, University of Heidelberg, Department of Economics.
    8. Caroline T Witte & Martijn J Burger & Elena I Ianchovichina & Enrico Pennings, 2019. "Correction to: Dodging bullets: The heterogeneous effect of political violence on greenfield FDI," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(3), pages 454-455, April.
    9. Chenaf-Nicet, Dalila & Rougier, Eric, 2016. "The effect of macroeconomic instability on FDI flows: A gravity estimation of the impact of regional integration in the case of Euro-Mediterranean agreements," International Economics, Elsevier, vol. 145(C), pages 66-91.
    10. Khalid Sekkat, 2012. "Manufactured Exports and FDI in the MED-11 Countries: Recent Evolution, Determinants and Prospects," CASE Network Studies and Analyses 432, CASE-Center for Social and Economic Research.
    11. Opperman, Pieter & Adjasi, Charles Komla Delali, 2017. "The determinants of private capital flow volatility in Sub-Saharan African countries," Research in International Business and Finance, Elsevier, vol. 42(C), pages 312-320.
    12. Gonchar, Ksenia & Greve, Maria, 2022. "The impact of political risk on FDI exit decisions," Economic Systems, Elsevier, vol. 46(2).
    13. Lucke, Bernd & Rehfeldt, Erik, 2023. "How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America," European Journal of Political Economy, Elsevier, vol. 80(C).
    14. Marek Dabrowski & Luc DeWulf, 2013. "Economic Development, Trade and Investment in the Eastern and Southern Mediterranean Region," CASE Network Reports 0111, CASE-Center for Social and Economic Research.
    15. Sunita Sharma & Shalini Aggarwal & Meena Sharma & Abdallah AlKhawaja & Suzan Dsouza, 2025. "Unlocking BRICS Economies’ Potential: Infrastructure as the Gateway to Enhanced Capital Flows," JRFM, MDPI, vol. 18(6), pages 1-33, June.
    16. Dalila Nicet-Chenaf & Eric Rougier & Kamel Abdellah, 2012. "FDI and macroeconomic volatility: a close-up on the source countries," Post-Print hal-00798467, HAL.
    17. Abroon Qazi & Mecit Can Emre Simsekler, 2022. "Prioritizing interdependent drivers of financial, economic, and political risks using a data-driven probabilistic approach," Risk Management, Palgrave Macmillan, vol. 24(2), pages 164-185, June.
    18. Yapatake Kossele Thales Pacific & Ngaba Mbai-Akem Gabriella Magalie, 2023. "One Bad Turn Deserves Another: How Energy Production, Financial Instability, and Political Governance Crisis Sustain the Decline of FDI Inflows in the Central African Republic," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 831-853, June.
    19. Christopher Hajzler & Jonathan Rosborough, 2016. "Government Corruption and Foreign Direct Investment Under the Threat of Expropriation," Staff Working Papers 16-13, Bank of Canada.
    20. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI : A gravity analysis of European investment to Middle East and North Africa," Larefi Working Papers 1405, Larefi, Université Bordeaux 4.
    21. Caroline Witte & Martijn Burger & Elena Ianchovichina & Enrico Pennings, 2014. "Political Violence and Greenfield Foreign Direct Investment in Natural Resources," Working Papers 2014/23, Maastricht School of Management.
    22. Dalila NICET-CHENAF & Eric ROUGIER, 2014. "Output Volatility And Fdi To Middle East And North African Countries: A Close-Up On The Source Countries," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 40, pages 139-165.
    23. Kant, Chander, 2016. "Are institutions in developing countries malleable?," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 272-289.
    24. Rajeev K. Goel & James W. Saunoris, 2022. "Foreign direct investment (FDI): friend or foe of non-innovating firms?," The Journal of Technology Transfer, Springer, vol. 47(4), pages 1162-1178, August.

    More about this item

    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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