eng Science and Education Publishing Journal of Finance and Economics 2328-7276 2014-03-16 2 3 75 82 10.12691/jfe-2-3-4 JFE2014234 article Seyedashkan Madani madanee2012@gmail.com 1 Mahya Nobakht 1 Department of International Business, Nanjing University of Aeronautics and Astronautics, Nanjing, China 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. http://pubs.sciepub.com/jfe/2/3/4/jfe-2-3-4.pdf FDI inflows political institutions democracy Upper-Middle-income Countries GMM estimator