Democratic governance and multinational corporations
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Democratic Governance and Multinational Corporations. Political Regimes and Inflows of Foreign Direct Investment ~ by Nathan Jensen. Research Question. How political regimes affect FDI Inflows? Dependent Variable Net FDI Inflows Independent Variable Democracy Level. Author’s Motivation.

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Democratic Governance and Multinational Corporations

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Democratic governance and multinational corporations

Democratic Governance and Multinational Corporations

Political Regimes and Inflows of Foreign Direct Investment

~ by Nathan Jensen


Research question

Research Question

  • How political regimes affect FDI Inflows?

  • Dependent Variable

    • Net FDI Inflows

  • Independent Variable

    • Democracy Level


Author s motivation

Author’s Motivation

  • “critics argue that the benefits of multinational production come with substantial costs for governments and their citizens. The need to attract FDI pressures governments to provide a climate more hospitable to foreign corporations”

    • Jensen p.587


Argument

Argument

  • “I argue that once a multinational has invested in a foreign market, disinvestment of physical assets is costly. Multinationals face tremendous political risks.”


Hypotheses

Hypotheses

  • “The hypothesis [is] that democratic institutions are associated with higher levels of FDI inflows.”

    • Pg 597


Research design 4 tests

Research Design (4 tests)

  • Sample

    • 114 countries

    • 1970-1997

  • Dependent variable

    • Measure: FDI as a percentage of gross domestic investment

  • Independent Variable

    • Democracy Level

      • Measure of Political Regime averages for 1990 from the Polity III data set be Jaggers and Gurr


Tests

Tests

  • Test Set One

    • Estimates the effects of democratic institutions on FDI inflows in a cross-section of countries in the 1990s.

  • Test Set Two

    • Tests the relationship by using a time series cross-sectional analysis of more than 100 countries for almost thirty years.


Tests1

Tests

  • Test Set Three

    • Employs a Heckman selection Model to further examine the robustness of the relationship.

  • Final Test

    • Examines the causal mechanism linking democracy and FDI by examining the effects of democratic institutions on sovereign debt ratings


Results

Results

  • “Democratic institutions are not in efficient institutions in terms of attracting multinational corporations. There is simply no empirical evidence that [MNCs] prefer to invest in dictatorships over democratic regimes.”

    • Pg 612


Criticisms

Criticisms

  • Too Broad – 114 countries…could have been more specific with smaller number

  • Too many models – 19

  • Democracy rating was ambiguous

    • Measure of Political Regime averages for 1990 from the Polity III data set be Jaggers and Gurr


Contributions

Contributions

  • “The empirical analysis in this article develops a number of models of FDI inflows, checking the robustness of the link between democratic governance and FDI by changing the model specifications and empirical tests.”

    • Pg 597


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