Dang: Similarities Attract – Political Regimes and Foreign Direct Investments

Abstract:

According to a well-established and substantively significant finding in the international political economy literature, democratic host countries are better able to attract foreign direct investment (FDI). However, I show that the supposed association be-tween democracy and FDI disappears once I control for a selection bias in which FDI tends to originate from democratic home countries. I then provide empirical evidence to support a novel claim that it is not democracy by itself but political similarity be-tween the home and host countries that attracts FDI. Additionally, I suggest a causal explanation for why FDI tends to flow between politically similar countries.

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