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FDI Waves, Waves of Neglect of Political Risk

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  • Méon, Pierre-Guillaume
  • Sekkat, Khalid

Abstract

Studies of the impact of local political risk on foreign direct investment inflows overlook that worldwide FDI comes in waves. Using a simple model we show that the impact of political risk on FDI inflows is likely to be weaker, the larger the worldwide amount of FDI, which may question standard estimates and their policy implications. Using a large sample of developing and developed economies, we estimate the sensitivity of the distribution of FDI inflows across countries, to the local political risk. We find that it is a decreasing function of the worldwide amount of FDI. This finding has been upheld after many robustness checks.

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  • Méon, Pierre-Guillaume & Sekkat, Khalid, 2012. "FDI Waves, Waves of Neglect of Political Risk," World Development, Elsevier, vol. 40(11), pages 2194-2205.
    • Handle: RePEc:eee:wdevel:v:40:y:2012:i:11:p:2194-2205
    DOI: 10.1016/j.worlddev.2012.03.022
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    12. Abroon Qazi & Mecit Can Emre Simsekler, 2022. "Prioritizing interdependent drivers of financial, economic, and political risks using a data-driven probabilistic approach," Risk Management, Palgrave Macmillan, vol. 24(2), pages 164-185, June.
    13. Yapatake Kossele Thales Pacific & Ngaba Mbai-Akem Gabriella Magalie, 2023. "One Bad Turn Deserves Another: How Energy Production, Financial Instability, and Political Governance Crisis Sustain the Decline of FDI Inflows in the Central African Republic," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 831-853, June.
    14. Schmaljohann, Maya, 2013. "Enhancing Foreign Direct Investment via Transparency? Evaluating the Effects of the EITI on FDI," Working Papers 0538, University of Heidelberg, Department of Economics.
    15. Christopher Hajzler & Jonathan Rosborough, 2016. "Government Corruption and Foreign Direct Investment Under the Threat of Expropriation," Staff Working Papers 16-13, Bank of Canada.
    16. Dalila Nicet-Chenaf & Eric Rougier, 2014. "Source and host country volatility and FDI : A gravity analysis of European investment to Middle East and North Africa," Larefi Working Papers 1405, Larefi, Université Bordeaux 4.
    17. Caroline T Witte & Martijn J Burger & Elena I Ianchovichina & Enrico Pennings, 2017. "Dodging bullets: The heterogeneous effect of political violence on greenfield FDI," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(7), pages 862-892, September.
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    20. Khalid Sekkat, 2012. "Manufactured Exports and FDI in the MED-11 Countries: Recent Evolution, Determinants and Prospects," CASE Network Studies and Analyses 432, CASE-Center for Social and Economic Research.
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    More about this item

    Keywords

    foreign direct investment; institutions; political risk; governance;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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