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Democratic transition and foreign direct investment: Transition process matters

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  • Derbali, Ahmed
  • Trabelsi Masmoudi, Lilia
  • Zitouna, Habib

Abstract

This paper provides evidence on the relationship between foreign direct investment (FDI) and democratic transition. We propose first an econometric analysis of the determinants of the democratization process through a "probit" model. We consider a sample of 173 countries, with 44 that have experienced a democratic transition over the period 1980-2010. Our results reveal that variables related to human development and individual freedom facilitate the initiation of the democratic process in contrast to those related to social heterogeneity. In the second part, we study the impact of the democratic transition on FDI inflows. In order to avoid endogeneity, we limit the analysis to countries in transition and similar ones deduced from a matching process carried out after the first part. Our results confirm that democratic transitions lead to a significant increase in FDI inflows

Suggested Citation

  • Derbali, Ahmed & Trabelsi Masmoudi, Lilia & Zitouna, Habib, 2015. "Democratic transition and foreign direct investment: Transition process matters," MPRA Paper 66057, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66057
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    References listed on IDEAS

    as
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    4. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    5. Powell-Jackson, Timothy & Basu, Sanjay & Balabanova, Dina & McKee, Martin & Stuckler, David, 2011. "Democracy and growth in divided societies: A health-inequality trap?," Social Science & Medicine, Elsevier, vol. 73(1), pages 33-41, July.
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    More about this item

    Keywords

    Democratic transition; foreign direct investment; matching;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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