Abstract
This chapter argues that foreign direct investment (FDI) has been embraced as a key driver of economic development and growth in host economies. Amongst the literature focusing on the determinants of FDI, a number of studies have considered the influence of the level of democracy in host countries on inward FDI and have reported contrasting results. To explain these inconsistencies, a recent strand of literature has focused on the disaggregated measures that constitute democracy of the host countries, mainly civil liberties and political rights. We argue that the effect of civil liberties and political rights will depend on the motivations of MNEs investing and will have a strong impact on the jobs created. We also argue that there is a positive moderating effect from the existence of human capital (semi and highly skilled) on the effect of political rights and civil liberties on the jobs created. We empirically test our hypotheses on a large sample of approximately 35,000 investment projects in 110 develo** and emerging economies over the period 2003–2013. Our findings suggest that there is a non-linear relationship between civil liberties and FDI, and the existence of human capital does moderate the relationship in a positive way.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
The list of recipient countries can be found in Appendix 1.
- 2.
The correlation matrix for our dependent and independent variables can be found in Appendix 2.
- 3.
To choose among various breakpoints in our sample, we also employed the Supremum F test, which involves estimating all Chow F-statistics for each potential breakpoint in the sample and choosing the one where the F-statistic was higher. When this test was implemented, the breakpoint was determined at CL = 4. The differences of the estimated coefficients among the two models (CL ≤ 4 and CL < 4) were not as statistically significant as the ones presented here. Further both R-squares were much lower than when the breakpoint was at CIVILREP = 3.
References
Adam, A., & Filippaios, F. (2007). Foreign direct investment and civil liberties: A new perspective. European Journal of Political Economy, 23(4), 1038–1052.
Addison, T., & Heshmati, A. (2003). The new global determinants of FDI flows to develo** countries: The importance of ICT and democratization (World Institute for Development Economic Research (UNU WIDER) Discussion Paper 2003/45). UNU WIDER.
Asiedu, E., & Lien, D. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99–111.
Baek, K., & Qian, X. (2011). An analysis on political risks and the flow of foreign direct investment in develo** and industrialized economies. Economics, Management and Financial Markets, 6(4), 60–91.
Bandelj, N. (2002). Embedded economies: Social relations as determinants of foreign direct investment in Central and Eastern Europe. Social Forces, 81(2), 411–444.
Blanton, S. L., & Blanton, R. (2007, February). What attracts foreign investors? An examination of human rights and foreign direct investment. Journal of Politics, 69(1), 143–155.
Borensztein, E. J., De Gregorio, J., & Lee, J.-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135.
Busse, M. (2004). Transnational corporations and repression of political rights and civil liberties: An empirical analysis. Kyklos, 57(1), 45–65.
Busse, M., & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2), 397–415.
Coates, D., Willson, B., & Heckelman, J. (2010). The political economy of investment: Sclerotic effects from interest groups. European Journal of Political Economy, 26(2), 208–221.
Coughlin, C., Terza, J., & Vanchira, A. (1991). State characteristics and the location of foreign direct investment within the United States. The Review of Economics and Statistics, 73(4), 675–683.
Drazen, A. (2000). Political economy in macroeconomics. Princeton, NJ: Princeton University Press.
Dunning, J. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31.
El-Wassal, K. (2012). Foreign direct investment and economic growth in Arab countries (1970–2008): An inquiry into determinants of growth benefits. Journal of Economic Development, 37(4), 79–100.
Ferejohn, J. (1986). Incumbent performance and electoral control. Public Choice, 50(1), 5–25.
Greider, W. (1998). One world, ready or not: The manic logic of global capitalism. New York: Simon & Schuster.
Harms, P., & Ursprung, H. (2002). Do civil and political repression really boost foreign direct investments? Economic Inquiry, 40(4), 651–663.
Huntington, S. P., & Dominguez, J. I. (1975). Political development. In F. I. Greenstein & N. W. Polsby (Eds.), Handbook of political science (Vol. 3, pp. 1–114). Reading: Addison-Wesley.
Jensen, N. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International Organization, 57(3), 587–616.
Katz, M. N. (2004). Assessing the political stability of Oman. Middle East Review of International Affairs, 8(3), 1–10.
Li, Q., & Resnick, A. (2003). Reversal of fortunes: Democratic institutions and foreign direct investment inflows to develo** countries. International Organization, 57(1), 175–211.
McGuire, M. C., & Olson Jr., M. (1996). The economics of autocracy and majority rule: The invisible hand and the use of force. Journal of Economic Literature, 34(1), 72–96.
Noorbakhsh, F., Alberto, P., & Ali, Y. (2001). Human capital and FDI inflows to develo** countries: New empirical analysis. World Development, 29(9), 1593–1610.
Olson, M. (1993). Dictatorship, democracy, and development. American Political Science Review, 87(3), 567–576.
Pournarakis, M., & Varsakelis, N. (2004). Institutions, internationalization and FDI: The case of economies in transition. Transnational Corporations, 13(2), 77–94.
Rodrik, D. (1996). Labour standards in international trade: Do they matter and what do we do about them? In R. Lawrence, D. Rodrik, & J. Whalley (Eds.), Emerging agenda for global trade: High stakes for develo** countries (pp. 35–79). Washington, DC: Overseas Development Council.
Solomon, B., & Ruiz, I. (2012). Political risk, macroeconomic uncertainty and the patterns of foreign direct investment. The International Trade Journal, 26(1), 181–198.
Ursprung, H., & Harms, P. (2001). Do civil and political repression really boost foreign direct investments? (CESifo Working Paper Series No. 421). Available at SSRN: https://ssrn.com/abstract=265418
Wintrobe, R. (1998). The political economy of dictatorship. Cambridge: Cambridge Books.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Appendices
Appendix 1: List of recipient countries
Albania; Algeria; Angola; Argentina; Armenia; Azerbaijan; Bahamas; Bahrain; Bangladesh; Belarus; Bolivia; Botswana; Brazil; Bulgaria; Burkina Faso; Cameroon; Chile; China; Colombia; Congo (DRC); Costa Rica; Cote d’Ivoire (Ivory Coast); Croatia; Cuba; Czech Republic; Dominican Republic; Ecuador; Egypt; El Salvador; Estonia; Ethiopia; Gabon; Gambia; Ghana; Guatemala; Guinea; Guinea-Bissau; Guyana; Haiti; Honduras; Hungary; India; Indonesia; Iran; Iraq; Jamaica; Jordan; Kazakhstan; Kenya; Kuwait; Latvia; Lebanon; Liberia; Libya; Lithuania; Madagascar; Malawi; Malaysia; Mali; Malta; Mexico; Moldova; Mongolia; Morocco; Mozambique; Myanmar (Burma); Namibia; Nicaragua; Niger; Nigeria; North Korea; Oman; Pakistan; Panama; Papua; New Guinea; Paraguay; Peru; Philippines; Poland; Qatar; Republic of the Congo; Romania;
Russia; Saudi Arabia; Senegal; Serbia; Sierra Leone; Slovakia; Slovenia; Somalia; South Africa; South Korea; Sri Lanka; Sudan; Suriname; Tanzania; Thailand; Togo; Trinidad & Tobago; Tunisia; Turkey; UAE; Uganda; Ukraine; Uruguay; Venezuela; Vietnam; Yemen; Zambia; Zimbabwe.
Appendix 2: Correlation matrix
Jobs created | GDP | GDP per person employed | FDI Inflows | Trade | Ores and metals exports | Fuel exports | Gross enrol-ment ratio, secondary | Gross enrol-ment ratio, tertiary | Institu-tional quality | Political rights | Civil liberties | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jobs created | 1.0000 | |||||||||||
GDP | 0.0645 | 1.0000 | ||||||||||
GDP per person employed | −0.0751 | −0.4267 | 1.0000 | |||||||||
FDI Inflows | −0.0208 | −0.2743 | 0.0871 | 1.0000 | ||||||||
Trade | −0.0549 | −0.6103 | 0.4642 | 0.2823 | 1.0000 | |||||||
Ores and metals exports | −0.0218 | −0.2395 | 0.1045 | 0.1301 | −0.0654 | 1.0000 | ||||||
Fuel exports | −0.0615 | −0.1133 | 0.0384 | −0.0206 | −0.0976 | −0.0116 | 1.0000 | |||||
Gross enrolment ratio, secondary | −0.0816 | −0.3679 | 0.6926 | 0.1440 | 0.3365 | −0.0005 | 0.1174 | 1.0000 | ||||
Gross enrolment ratio, tertiary | −0.0633 | −0.4155 | 0.6986 | 0.1163 | 0.3810 | 0.0922 | 0.1323 | 0.7241 | 1.0000 | |||
Institutional quality | −0.0027 | −0.3881 | 0.5671 | 0.2235 | 0.4788 | 0.0751 | −0.1733 | 0.4696 | 0.4159 | 1.0000 | ||
Political rights suppression | −0.0327 | 0.5437 | −0.3172 | −0.0854 | −0.2607 | −0.2415 | 0.1634 | −0.1726 | −0.3070 | −0.3398 | 1.0000 | |
Civil liberties suppression | −0.0185 | 0.6402 | −0.4124 | −0.1438 | −0.3736 | −0.2548 | 0.1975 | −0.2967 | −0.4360 | −0.4483 | 0.9573 | 1.0000 |
Rights and permissions
Copyright information
© 2017 The Author(s)
About this chapter
Cite this chapter
Filippaios, F., Annan-Diab, F., Hermidas, A. (2017). Civil and Political Liberties and FDI: An Evaluation of Emerging and Develo** Economies. In: Ibeh, K., Tolentino, P., Janne, O., Liu, X. (eds) Growth Frontiers in International Business. The Academy of International Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-48851-6_12
Download citation
DOI: https://doi.org/10.1007/978-3-319-48851-6_12
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-48850-9
Online ISBN: 978-3-319-48851-6
eBook Packages: Business and ManagementBusiness and Management (R0)