Research Webinar | Does foreign direct investment (FDI) increase the quality of democracy? An instrumental variable analysis
Despite multiple crises and attempts to impose protectionist measures, capital continues to circulate around the globe with minimum restrictions at an increasing speed. Most scholars have remained optimistic about the implications of these densely networked circuits, implying that capital inflows have positive economic and political repercussions on the communities that welcome them. Of particular significance is the discussion on the role of FDI. Yet, we know very little about the impact of FDI on the quality of political regimes over time. Do these investments improve or worsen democratic consolidation processes in the long run? This paper makes an important contribution to this debate by unpacking this relationship using a global sample of 86 countries for the period between 1980 and 2018. Based on instrumental variable analysis, we find evidence that a rise in the inward FDI stock increases the probability of a decline across major components of democratic quality. The findings further reveal that probability of a negative change is consistent, strong and robust. By contrast, the amount of inward FDI stock has no linear effect on democratic quality.
Fulya Apaydin's work is situated at the intersection of comparative politics and international studies with a particular emphasis on the political economy of development. Broadly, she is interested in how investment policies across emerging economies are transformed in face of global pressures, and how political actors respond to these challenges at the local and national levels. Her current research examines the implications of capital flows on development. At IBEI, Fulya is part of the GLOBE research team, and she is the PI of "Financial Liberalization and Authoritarian Survival (FLAS), a research project funded by the Ministry of Science, Innovation and Universities.
Jonas W. Schmid is a Doctoral Research Fellow in the project The Emergence, Life, and Demise of Autocratic Regimes (ELDAR) at the University of Oslo. He holds a BA in Political Science and Humanities by the Technical University of Dresden. He holds a MA Research in Political Sciences and Politics and Public Administration, in a double Master degree jointly taught by the UPF and the University of Konstanz.