Foreign direct investment, corruption and democracy

This article is the first to show that foreign investors care about economic freedoms, rather than political freedoms, in making decisions about where to locate capital. Hence more democratic countries may receive less Foreign Direct Investment (FDI) flows if economic freedoms are not guaranteed. On...

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Published inApplied economics Vol. 45; no. 8; pp. 991 - 1002
Main Authors Mathur, Aparna, Singh, Kartikeya
Format Journal Article
LanguageEnglish
Published London Routledge 01.03.2013
Taylor and Francis Journals
Taylor & Francis Ltd
SeriesApplied Economics
Subjects
21st century
Capital
China
Corruption
Corruption in government
Decision making
Democracy
Democratization
Economic reform
emerging economies
Foreign direct investment
Foreign investment
Freedoms
Panel data
Political economy
Property rights
Singapore
spatial econometrics
Studies
Online AccessGet full text
ISSN0003-6846
1466-4283
DOI10.1080/00036846.2011.613786

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Summary:This article is the first to show that foreign investors care about economic freedoms, rather than political freedoms, in making decisions about where to locate capital. Hence more democratic countries may receive less Foreign Direct Investment (FDI) flows if economic freedoms are not guaranteed. One reason could be that democratizing developing economies are often unable to push through the kind of economic reforms that investors desire due to the presence of competing political interests. This could potentially explain why countries like China and Singapore that rank poorly on the democracy index but are relatively high on the property rights index do well in terms of FDI inflows.
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ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2011.613786