It is widely acknowledged that political regimes significantly influence the relationship between multinational corporations (MNCs) and democratic governance. Whether political regimes impact Foreign Direct Investment (FDI) inflow intersects with the interaction between MNCs and democratic governance, Williamson,( 1977). In democratic governments, MNCs often operate within a framework that prioritizes transparency, accountability, and the rule of law. Such conditions can be conducive to increased FDI inflows. According to (Curry, 1982), Democratic governance typically fosters an environment where MNCs have more confidence in protecting their investments, as legal structures and institutional frameworks are designed to safeguard property rights and uphold contracts. This contributes to a more stable and predictable business environment, encouraging higher levels of investment from MNCs (Li and Resnick, 2003). Conversely, in authoritarian regimes or those with weak democratic institutions, MNCs might encounter challenges related to instability, corruption, and unpredictable policy changes. These factors can create barriers to FDI inflows as MNCs may perceive higher risks and uncertainties associated with investing in such environments (Salehizadeh, 1983). The global economy depends heavily on FDI, which fuels economic growth, employment creation, technological advancement, and productivity. Along with providing jobs and capital accumulation that may not be easily accessible in the domestic market, FDI also facilitates the transfer of technology across nations, which is particularly advantageous to developing economies(Lee, 2019). As a result, attracting FDI has emerged as a crucial element of many nations’ aspirations for economic development(Suliman and Elian, 2014., Chen, 2018). Although most academics concur that foreign direct investment (FDI) has broad economic benefits, some contend that governments and individuals bear heavy expenses due to multinational companies(Erramilli, 1996). Governments may be pressured to modify domestic economic policies to attract foreign direct investment (FDI), which could hurt national sovereignty and the ability to practice democratic governance(Kerner, 2014). Some view democracy as an ineffective institutional framework in the international economy (Jensen, 2005., Stiglitz, 2007). This study empirically evaluates the political environments required to attract foreign direct investment for 150 countries by employing panel regression and cross-sectional analysis. The cross-sectional regressions deal with how policy choices, economic conditions, and democratic political institutions in the 1990s impacted FDI inflows in the 2010s.

Author: Abera Fekadu Hailemareiam

Published in: Canada International Conference on Education, 2024

• Date of Conference: 23-25 July, 2024
• DOI: 10.20533/CICE.2024.0083
• Electronic ISBN: 978-1-913572-65-5
• Conference Location: Toronto Metropolitan University, Toronto, Canada