Journal of Finance and Economics
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Journal of Finance and Economics. 2014, 2(3), 75-82
DOI: 10.12691/jfe-2-3-4
Open AccessResearch Article

Political Regimes and FDI Inflows: Empirical Evidence from Upper Middle Income Countries

Seyedashkan Madani1, and Mahya Nobakht1

1Department of International Business, Nanjing University of Aeronautics and Astronautics, Nanjing, China

Pub. Date: March 16, 2014
(This article belongs to the Special Issue Multinational Capital Budgeting)

Cite this paper:
Seyedashkan Madani and Mahya Nobakht. Political Regimes and FDI Inflows: Empirical Evidence from Upper Middle Income Countries. Journal of Finance and Economics. 2014; 2(3):75-82. doi: 10.12691/jfe-2-3-4


This paper accounts for the political determinant of foreign direct investment (FDI) inflows for 31 Upper-Middle-income Countries (UMCs) over the period of 1990-2011. By measuring the types of regime along an autocracy-democracy spectrum, we empirically investigate how the quality of political institutions in host countries can impact the level of political risks perceived by foreign investors and Multinational Corporates (MNCs). The dynamic panel ‘‘difference’’ GMM estimator proposed by Arellano and Bond (1991) is developed to deal with auto-correlation problems and endogeneity of the variables in the models. The empirical findings indicate that democracy enhances FDI toward UMCs. Indeed, its positive effect on FDI inflows is remarkable compared to other economic control variables accounted for in this paper.

FDI inflows political institutions democracy Upper-Middle-income Countries GMM estimator

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