Reversal Of Fortunes: Democracy, Property Rights And Foreign Direct Investment Inflows To Developing Countries
- Topics:
- Global Strategy
- Tags:
- Currency & Foreign Exchange,
- Developing Country,
- Finance,
- Foreign Direct Investment,
- Foreign Direct Investment (FDI),
- Inflow,
- Investment,
- Question This Article Address
- Source:
- Western Washington University
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Overview: The question this article addresses is does increased democracy promote or jeopardize Foreign Direct Investment (FDI) inflows to Less Developed Countries (LDCs). It argues that democracy affects FDI inflows through competing causal avenues. On one hand, the higher levels of political participation and representation that are part of more democratic countries hinder FDI inflows. On the other hand, countries that are more democratic tend to offer more credible property rights protection over time, encouraging FDI inflows. Hence, the net effect of democracy on FDI inflows is contingent upon the strength of these two competing forces. The argument reconciles conflicting theoretical expectations in the existing literature. Empirical analyses of 52 developing countries from 1982 to 1995 substantiate the claims. One find that increases in democracy, after controlling for property rights protection, leads to lower levels of FDI inflows while better property rights have the opposite effect. It also finds that countries that are more democratic are associated with better property rights protection than less democratic ones. Policy implications of the findings are discussed.
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Format: PDF | Size: 121KB | Date: Oct 2001 | Pages: 41
