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The Influence of Democratic Electoral Processes on Inflows of Foreign Direct Investment

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  • James R. Martin Jr.

    (Creighton University)

Abstract

This paper examines the influence of democratic politics on a critical component of modern economies: inflows of foreign direct investment (FDI). Scholars suggest that the principals of corporations prefer to invest in companies in democracies than within authoritarian regimes; however, variance does occur across democracies. I pose a simple question: what is it about democracy that influences inflows of foreign direct investment? I explore the argument that the ebb and flow of domestic politics (in the form of national level elections and government formations) may play a role. Using time series data from democracies around the world, I find that while the timing of a legislative or presidential election does not appear to directly influence inflows of foreign direct investment, their outcomes may: lengthy government formations may be associated with greater increases in FDI, as are left and centrist prime ministers. Finally, politically polarized legislatures seem to discourage investors.

Suggested Citation

  • James R. Martin Jr., 2021. "The Influence of Democratic Electoral Processes on Inflows of Foreign Direct Investment," Journal of Economic Insight, Missouri Valley Economic Association, vol. 47(2), pages 1-26.
    • Handle: RePEc:mve:journl:v:47:y:2021:i:2:p:1-26
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    More about this item

    JEL classification:

    • 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
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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