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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

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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