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Rights, Institutions, and FDI Impact: An Empirical Study Across Sectors

This study analyzes the influence of rights and institutions on Foreign Direct Investment (FDI) across industrial sectors. By examining human rights, democratic governance, and institutional factors, the research uncovers varying impacts on different sectors. The findings reveal the significance of factors such as skill levels, dynamic inconsistency risks, and the mobility of capital in shaping FDI patterns. Through regression analysis, the study identifies the different effects of rights and institutions on FDI, with implications for policy and further research on the sociopolitical determinants of FDI diversity.

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Rights, Institutions, and FDI Impact: An Empirical Study Across Sectors

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  1. Robert G. Blanton Shannon Lindsey Blanton University of Memphis Rights, Institutions and FDI: An Empirical Assessment

  2. Goal/Contribution • Examine role of rights and institutions in influencing FDI • Human Rights – personal integrity, labor rights, education • Institutions – BITs, FTAs, WTO, democratic governance • Variance across industrial sectors

  3. Political Influences on FDI • Rights • “spotlight” effect • more productive society • Institutions • reduce “dynamic inconsistency” problems • visible commitment to liberal policies

  4. Variation across sectors? Two key factors: • Skill level – linked with greater concern with rights • Dynamic Inconsistency Risks – greater need for institutional guarantees • Sunk costs • Mobility of capital

  5. Data and Research considerations • FDI data • BEA • FDI stock for 11 sectors, 1982-2007 • Leading hosts of U.S. FDI • 3 rights measures, 4 institutions measures • Rights – CIRI physical integrity and labor rights, human capital • Institutions – Polity, BITs, PTAs, WTO

  6. Specific Sectors

  7. Regression strategy • Pool observations • Unit of analysis – sector/country-year • Dummy variable + interaction terms for key independent variables • Base model (all sectors) • Model 1 – skill level dummy and interaction terms for rights and institutions variables • Model 2 – same for D.I. • Population-averaged model

  8. Findings (Key Variables)

  9. Findings – Interaction Terms

  10. Conclusions • Rights have a somewhat stronger impact than institutions • Impact of skill – rights still matter at lower skill levels contra “labor dumping” • Dynamic inconsistency • Rights – more mobile capital responsive to rights • Institutions – Democracy, WTO

  11. Implications/Further research • Democracy? • Need to further assess sociopolitical determinants • Need to account for diversity of FDI in analyses

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