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Political Risk, Institutions and Foreign Direct Investment

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  • Busse, Matthias
  • Hefeker, Carsten

Abstract

The paper explores the linkages between political risk, institutions and foreign direct investment inflows. Using different econometric techniques for a data sample of 83 developing countries and the period 1984 to 2003, we identify those indicators that matter most for the activities of multinational corporations. Overall, 12 different indicators for political risk and institutions are employed in the empirical analysis. The results show that government stability, the absence of internal conflict and ethnic tensions, basic democratic rights and ensuring law and order are highly significant determinants of foreign investment inflows.

Suggested Citation

  • Busse, Matthias & Hefeker, Carsten, 2005. "Political Risk, Institutions and Foreign Direct Investment," Discussion Paper Series 26388, Hamburg Institute of International Economics.
    • Handle: RePEc:ags:hwwadp:26388
    DOI: 10.22004/ag.econ.26388
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    More about this item

    Keywords

    Institutional and Behavioral Economics; Political Economy;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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