Political environment and foreign direct investment: Evidence from OECD countries

Abstract

This paper examines the role that political factors play in the investment location decisions of multinational enterprises. It has been found that foreign direct investors shy away from countries with excessive government spending, especially when this spending is directed towards the military. They also seem to have a slight preference for leftist executives and be negatively predisposed toward situations in which the ruling party has held power for prolonged periods of time. Ceteris paribus, more FDI flows to countries that have presidential systems, established political parties and where the party of the executive controls all houses with lawmaking powers. JEL classifications: F21; F50; P16

The special issue on FDI and multinational corporations: an introduction

“…The important influence of the constitutional framework identified by Bougharriou et al is reminiscent of previous results by Harms and Ursprung (2002), Busse and Hefeker (2007), Asiedu and Lien (2011) as well as Wisniewski and Pathan (2014), and indicates that institutional and political features of host countries are no less important in attracting multinational corporations than purely economic factors. This, in turn, illustrates that the analysis of FDI often requires an interdisciplinary approach, both when it comes to understanding the forces that enhance or dampen investment flows, and when it is about the aggregate, distributional, and social consequences of foreign direct investment.…”

Analyse des effets de la qualité des institutions sur la volatilité des Investissements Directs Etrangers en Afrique

“…Wei () et Bokpin () trouvent que de bonnes institutions favorisent l'attractivité des IDE. Wisniewski et Pathan () concluent que la qualité de la règlementation accroit l'attractivité des IDE. Aussi, Anyanwu et Yaméogo (2015a et 2015b) montrent que la démocratie a des effets positifs sur les flux entrants des IDE en Afrique de l'Ouest.…”

Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?

“…35 For evidence on the potential negative relationship between government taxation (or consumption) and FDI, see Jensen (2003), Ali et al (2010), Wisniewski andPathan (2014), andWei (2000), among others. 36 An extensive literature has examined how FDI is influenced by various categories of political risk falling under this category.…”

“…36 An extensive literature has examined how FDI is influenced by various categories of political risk falling under this category. Notable examples include government corruption (Wei, 2000;Egger and Winner, 2005;Hakkala et al, 2008), uncertainty associated with various types of political regimes (Jensen, 2003;Li and Resnick, 2003;Busse, 2004;Kolstad and Villanger, 2008;Wisniewski and Pathan, 2014), and regulatory risk such as onerous or nontransparent licensing procedures (Gastanaga et al, 1998;Naudé and Krugell, 2007). 27 3.…”

“…The inflation rate, measured as the annual percentage change in the domestic consumer price index (CPI), is used as a proxy for macroeconomic instability; low inflation is hypothesized to reduce uncertainty and increase levels of confidence in the economy, thereby attracting higher FDI inflows. Taxation, which is expected to discourage FDI, is proxied by government size as a share of aggregate output (as in Jensen, 2003;Albuquerque et al, 2005;Ali et al, 2010;Wisniewski and Pathan, 2014). 23…”