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Political governance, civil liberties, and human capital: Evaluating their effect on foreign direct investment in emerging and developing economies

Abstract

We study the influence of a country’s political governance on its attractiveness to foreign direct investors. We argue that democracy is not a unidimensional concept and that the effect of host-country political governance on incoming foreign direct investment (FDI) differs depending on whether FDI originates from a democratic or an autocratic country. We also hypothesize that the effect of civil liberties depends on the motivations of investing multinational enterprises (MNEs) and that human capital moderates this relationship. We test our hypotheses on a sample of 35,000 investments in emerging and developing countries between 2003 and 2013.

Résumé

Nous étudions l’influence de la gouvernance politique d’un pays sur son attractivité pour les investisseurs directs étrangers. Nous affirmons que la démocratie n’est pas un concept unidimensionnel et que l’effet de la gouvernance politique du pays hôte sur l’investissement direct étranger (IDE) entrant diffère selon que l’IDE provient d’un pays démocratique ou autocratique. Nous émettons également l’hypothèse que l’effet des libertés civiles dépend des motivations des entreprises multinationales (EMN) qui investissent et que le capital humain modère cette relation. Nous testons nos hypothèses sur un échantillon de 35 000 investissements dans les pays émergents et en développement entre 2003 et 2013.

Resumen

Estudiamos la influencia de la gobernanza política de un país en su atractivo para los inversores extranjeros directos. Discutimos que la democracia no es un concepto unidimensional y que el efecto de la gobernanza política del país anfitrión sobre la inversión extranjera directa (IED) difiere según si la IED se origina de un país democrático o autocrático. También hipotetizamos que el efecto de las libertades civil depende de las motivaciones de las Empresas Multinacionales (EMN) inversoras y que el capital humano modera esta relación. Probamos nuestra hipótesis en una muestra de 35.000 inversiones en países emergentes y en desarrollo entre el 2003 y el 2013.

Resumo

Estudamos a influência da governança política de um país em sua atratividade para investidores estrangeiros diretos. Argumentamos que a democracia não é um conceito unidimensional e que o efeito da governança política do país anfitrião sobre o Investimento Estrangeiro Direto (FDI) difere, dependendo de o FDI vir de um país democrático ou autocrático. Também supomos que o efeito das liberdades civis depende das motivações de Empresas Multinacionais (MNEs) para investir e que o capital humano modera essa relação. Testamos nossas hipóteses em uma amostra de 35.000 investimentos em países emergentes e em desenvolvimento entre 2003 e 2013.

摘要

我们研究一个国家的政治治理对其对外国直接投资者的吸引力的影响。我们认为民主不是单维的概念,东道国政治治理对外国直接投资(FDI)的影响因外国直接投资是来自民主还是专制国家而有所不同。我们还假设公民自由的影响取决于做投资的跨国企业(MNEs)的动机,并且人力资本调节这种关系。我们对2003至2013年间新兴国家和发展中国家的35,000个投资样本检测了我们的假设。

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ACKNOWLEDGEMENTS

We would like to thank two anonymous reviewers for their comments and suggestions as well as the Area Editor Professor Rajneesh Narula for his guidance throughout the review process.

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Correspondence to Fragkiskos Filippaios.

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Accepted by Rajneesh Narula, Area Editor, 2 March 2019. This article has been with the authors for four revisions.

Appendices

Appendix 1. List of recipient countries

Albania, Algeria, Angola, Argentina, Armenia, Azerbaijan, Bahamas, Bahrain, Bangladesh, Belarus, Bolivia, Botswana, Brazil, Bulgaria, Burkina, Faso, Cameroon, Chile, China, Colombia, Congo (DRC), Costa Rica, Cote d’Ivoire (Ivory Coast), Croatia, Cuba, Czech Republic, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Gabon, Gambia, Ghana, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Hungary, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Latvia, Lebanon, Liberia, Libya, Lithuania, Madagascar, Malawi, Malaysia, Mali, Malta, Mexico, Moldova, Mongolia, Morocco, Mozambique, Myanmar (Burma), Namibia, Nicaragua, Niger, Nigeria, North Korea, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Republic of the Congo, Romania, Russia, Saudi Arabia, Senegal, Serbia, Sierra Leone, Slovakia, Slovenia, Somalia, South Africa, South Korea, Sri Lanka, Sudan, Suriname, Tanzania, Thailand, Togo, Trinidad & Tobago, Tunisia, Turkey, UAE, Uganda, Ukraine, Uruguay, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe.

Appendix 2

See Table 10.

Table 10 Correlation matrix

Appendix 3

See Table 11.

Table 11 Orthogonalization regressions for civil liberties suppression and political governance

Appendix 4

See Table 12.

Table 12 Regression analysis of the effect of civil liberties suppression and moderating factors on FDI from China (as home country) by investment motive (dependent variable logarithm of jobs created)

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Filippaios, F., Annan-Diab, F., Hermidas, A. et al. Political governance, civil liberties, and human capital: Evaluating their effect on foreign direct investment in emerging and developing economies. J Int Bus Stud 50, 1103–1129 (2019). https://doi.org/10.1057/s41267-019-00239-3

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Keywords

  • political governance
  • civil liberties
  • human capital
  • foreign direct investment
  • investment motivations