The effects of general and disaggregated measures of host country civil liberties and political freedom on foreign direct investment inflows

Using data from the PRS Group: International Country Risk Guide (ICRG), Freedom House's Freedom in the World data set, the United Nations Conference on Trade and Development's World Investment Report 2007, the CIRI Human Rights Data Project, and the World Bank's World Development Indicators, this study considers the effect of changes in host country political environment on foreign direct investment (FDI) in that country. More specifically, the study builds on existing scholarship to focus on the effects of general and disaggregated sociopolitical variables on FDI inflows. Previous studies on the topic have shown negative and positive relationships between political liberalization and FDI flows in and to the host country, with more recent studies tending toward the positive. By conducting multivariate analyses using standard and fixed effects models on 144 countries from 1991-2006, this paper shows positive relationships between certain sociopolitical variables and FDI flows across all the countries in the data set. In addition, the study looks at differences in these relationships according to region, speculating on possible reasons for variance, particularly in the context of the relevant time period. This study concludes with a discussion of what these relationships mean for the United States and the world at large, what they could portend for the years and decades to come, and what questions policy-makers might consider when exploring the complex interplay between economic and sociopolitical factors in the domestic and international arenas. Awareness of these phenomena is increasingly vital to a better understanding of geopolitical realities. Domestic factors - both economic and political - are now simultaneously drivers of and responders to international market and political trends, and the relationship between political liberalization and FDI is an instructive example.