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Preprints, Working Papers, ... Year : 2022

Does Foreign Direct Investment Promote Political Stability ? Evidence from Developing Economies

Abstract

This paper investigates the potential of Foreign Direct Investment (FDI) to counter socio-political instability, one of the most pressing challenges faced by developing countries. Socio-political (in)stability is approached from an institutional perspective and linked to one particular type of FDI, greenfield FDI, for its more direct socio-economic externalities and their influences on greed and grievance. The issue of causality is primarily addressed using a gravity-based instrumental variable for FDI, taking advantage of bilateral greenfield projects data. The empirical results using data over the period 2003-2017 for a large sample of developing countries show that FDI favors institutional development not only in terms of overall socio-political stability but also human rights compliant socio-political stability. The results are robust to a range of specifications and alternative identification strategies, as well as to a series of sensitivity tests. Overall, this study highlights the promotion of political stability as another channel through which FDI can contribute to development.
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Dates and versions

hal-03617085 , version 1 (23-03-2022)

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  • HAL Id : hal-03617085 , version 1

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Assi Okara. Does Foreign Direct Investment Promote Political Stability ? Evidence from Developing Economies. 2022. ⟨hal-03617085⟩
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