Political risk, institutions and foreign direct investment

Abstract

The paper explores the linkages between political risk, institutions and foreign direct

Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?

“…Several scholars find evidence of a positive relation between foreign direct investment (FDI) on the one hand and institutions on the other hand, e.g. legal protection, rule of law, investment treaties, and trade agreements, political stability, government efficiency, control of corruption, and financial supervision (see Buchanan et al (2012); Morrissey and Udomkerdmongkol (2012); Ali et al (2010); Javorcik and Wei (2009);Daude and Fratzscher (2008); Daude and Stein (2007); Busse and Hefeker (2007); Benassy-Quere et al (2007)). …”

Multinationals and Corruption: Business as Usual?

“…Corruption acting as the "grabbing hand" in FDI: Corruption in a host country introduces additional direct or indirect costs for the foreign investor and therefore makes FDI less likely. This argument …nds support in the works of Hines (1995), Wei (2000aWei ( , 2000b, Hellman et al (2002), Habib and Zurawicki (2002), Busse and Hefeker (2007), Hakkala et al (2008) and Javorcik and Wei (2009)…”

“…I include almost all variables with high inclusion probabilities (above 50 percent) for cross-border M&As reported in their worldwide sample. 8 Market size (measured by GDP ), infrastructure (measured by telephone mainlines per one million people,Tel ), skill level of the labor force in the host country (measured by the share of university graduates in the population, Skill ), trade openness of the host country (share of trade volume in GDP, Open) and distance (measured by using the great circle formula that calculates the minimum distance along the surface of the earth between Sweden and the host country, Distance) are widely used determinants of entry and are expected to favor both kinds of entry (Brainard (1997) (2001)). In addition, host country tax rate (measured by corporate tax rate, Tax ), double taxation treaties (measured by bilateral tax treaties in e¤ect between Sweden and the host country, DTT ), bilateral investment treaties (denoted as BIT ) and regional trade agreement (RTA) dummies are included as suggested by Blonigen and Piger (2011).…”

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

“…Other empirical investigations, however, find no (or weak) evidence linking the strength of contract enforcement to FDI (see, for example, Asiedu, 2002;Bénassy-Quéré et al, 2007;Busse and Hefeker, 2007;Jensen, 2003;Naudé and Krugell, 2007;Sánchez-Martin et al, 2014). 6 The latter body of work finds that measures of institutional quality (alternatively referred to as "political risk variables") other than expropriation risk-such as corruption, regulatory burden, and democratic accountability in establishing laws-are more important determinants of FDI inflows.…”

“…For example, Kolstad and Tøndel (2002) and Harms and Ursprung (2002) use log FDI per capita as their dependent variable, while Méon and Sekkat (2004) use log of FDI as a share of GDP. Busse and Hefeker (2007) examine log of net FDI per worker as their dependent variable. One important consideration when log-transforming the dependent variable is how to deal with non-positive values of FDI, a problem similar to that encountered with zero-valued trade flows in gravity models (e.g., Linders and de Groot, 8 2014;Helpman et al, 2008).…”