Political risks, governance indicators, and the attractiveness of Foreign Direct Investment in South America

Resumo

The current study aims to analyze whether there is a relationship between the inflow of Foreign Direct Investment (FDI) and the level of political risk in South American countries. The initial hypothesis is that countries with high political risk tend to be associated with lower FDI attraction. In addition, it is assumed that specific indicators of political risk related to governance also have a significant association with foreign direct investment flows in the South American region, this being the secondary hypothesis. Most of the literature evaluates the existence of this relationship within sub-regional dynamics and groups of countries with similar characteristics or geographic proximity, in South America, however, this relationship is little explored. To examine the initial hypothesis, a quantitative comparative analysis was conducted between two political risk indices based on the PRS Group's ICRG index (The International Country Risk Guide), derived from weights defined by the organization itself, and from the assignment of weights via principal component analysis (PCA), respectively. For the secondary hypothesis, we investigated four political risk indicators related to governance: corruption, democratic accountability, military in politics, government stability, bureaucracy quality and law and order. Two different estimation techniques were employed, the fixed effects, and the random effects panel regression econometric models, where the individuals (i) are represented by the 12 countries of the continent, and the time (t) is a period between 2006 and 2017. Our results show no evidence to corroborate or refute our initial hypothesis, while for the secondary hypothesis mixed results are found: "military and politics" and "government stability" variables have a significant and negative impact on FDI, while "bureaucracy quality" has a significant and positive relationship, finally, our findings do not enable a decisive conclusion regarding the "law and order", "democratic accountability" and "corruption" variables.

Ficha do documento

Tipo

Outro

Ano

2023

Instituição

Fundação Getulio Vargas

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.fgv.br:10438/38994

Temas

EconomiaDesenvolvimento RegionalDadosGovernança

Palavras-chave

GovernanceForeign Direct InvestmentPolitical riskCiência políticaInvestimentos estrangeirosRisco (Economia)Governança