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Membership has its privileges: The effect of membership in international organizations on FDI

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  • Dreher, Axel
  • Mikosch, Heiner
  • Voigt, Stefan

Abstract

We argue that membership in International Organizations (IOs) is an important determinant of FDI inflows. To the extent that membership restricts a country from pursuing policies that are harmful to investors, it can signal low political risk. Using data over the 1971-2005 period, we find that membership in IOs does indeed increase inflows of FDI. Controlling for the endogeneity of membership, we find this effect to be substantively important and robust to the method of estimation.

Suggested Citation

  • Dreher, Axel & Mikosch, Heiner & Voigt, Stefan, 2010. "Membership has its privileges: The effect of membership in international organizations on FDI," University of Göttingen Working Papers in Economics 114, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:114
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    5. Dreher, Axel & Voigt, Stefan, 2011. "Does membership in international organizations increase governments' credibility? Testing the effects of delegating powers," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 326-348, September.
    6. Krishna Chaitanya Vadlamannati, 2012. "Impact of Political Risk on FDI Revisited—An Aggregate Firm-Level Analysis," International Interactions, Taylor & Francis Journals, vol. 38(1), pages 111-139, January.
    7. Dreher, Axel & Mikosch, Heiner & Voigt, Stefan, 2015. "Membership has its Privileges – The Effect of Membership in International Organizations on FDI," World Development, Elsevier, vol. 66(C), pages 346-358.
    8. Kayalvizhi, P.N. & Thenmozhi, M., 2018. "Does quality of innovation, culture and governance drive FDI?: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 34(C), pages 175-191.
    9. Kai Gehring & Valentin F. Lang, 2018. "Stigma or Cushion? IMF Programs and Sovereign Creditworthiness," CESifo Working Paper Series 7339, CESifo.
    10. Duy Vu, 2018. "Reasons not to Exit? A Survey of the Effectiveness and Spillover Effects of International Investment Arbitration," GREDEG Working Papers 2018-35, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    11. Shah, Mumtaz Hussain, 2016. "The Effect of Macroeconomic Stability on Inward FDI in African Developing Countries," MPRA Paper 82014, University Library of Munich, Germany.
    12. Qian, Xianhang & Qiu, Shanyun, 2023. "Political risk and corporate international supply chain," Journal of International Money and Finance, Elsevier, vol. 137(C).
    13. Gehring, Kai & Lang, Valentin, 2020. "Stigma or cushion? IMF programs and sovereign creditworthiness," Journal of Development Economics, Elsevier, vol. 146(C).
    14. Cicatiello, Lorenzo & De Simone, Elina & Ercolano, Salvatore & Gaeta, Giuseppe Lucio, 2021. "Assessing the impact of fiscal transparency on FDI inflows," Socio-Economic Planning Sciences, Elsevier, vol. 73(C).
    15. Axel Dreher & Katharina Michaelowa, 2008. "The political economy of international organizations," The Review of International Organizations, Springer, vol. 3(4), pages 331-334, December.
    16. Shi, Buchao & Huang, Liangxiong & Wei, Shengmin & Geng, Xinyue, 2022. "Overseas industrial parks and China's outward foreign direct investment," Journal of Asian Economics, Elsevier, vol. 83(C).
    17. Schmidt, Sebastian & Rose, Andrew K. & Fuchs, Andreas, 2021. "Is Davos More Than a Boondoggle?," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242460, Verein für Socialpolitik / German Economic Association.
    18. Antonis Adam & Sofia Tsarsitalidou, 2024. "Be my guest: the effect of foreign policy visits to the USA on FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 455-480, May.
    19. Shah, Mumtaz Hussain, 2017. "The Significance of WTO’s Trade Related Investment Measures (TRIMs) Agreement For Inward FDI in Sub-Saharan Africa," MPRA Paper 82009, University Library of Munich, Germany.
    20. Fabian J. Baier, 2020. "Foreign Direct Investment and Tax: OECD Gravity Modelling in a World with International Financial Institutions," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 6(1), pages 45-72, October.
    21. Duy Vu, 2019. "Reasons not to exit? A survey of the effectiveness and spillover effects of international investment arbitration," European Journal of Law and Economics, Springer, vol. 47(2), pages 291-319, April.
    22. Fabian J. Baier, 2019. "Foreign Direct Investment and Tax: OECD Gravity Modelling in a World with International Financial Institutions," EIIW Discussion paper disbei261, Universitätsbibliothek Wuppertal, University Library.
    23. Jonas Gamso & Robert Grosse, 2021. "Trade agreement depth, foreign direct investment, and the moderating role of property rights," Journal of International Business Policy, Palgrave Macmillan, vol. 4(2), pages 308-325, June.

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    More about this item

    Keywords

    Membership in International Organizations; FDI; Investment Climate; Political Risk; Signaling; Separating Equilibrium;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights

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