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FDI and Democratic Governance, Evidence from a Panel VAR Model
Unformatted Document Text:  economic and social progress to the market to vitalize the economy, which is good to foster social pluralism (Soysa 2003). On the other hand, for the public in developing countries, those multinational corporations open windows to views of the democratic world. They have chance to access to more information, supplied not just by their own government (Li and Reuveny 2003). The most efficient diffusion of democratic norms is said to work through contact-based mechanisms which involve information flows, contact in the marketplace, communication networks, etc. Multinational corporations in developing countries actually provide this mechanism. Citizens become more involved in the day-to-day economic and social issues, facilitating democracy. To sum, foreign direct investments are said to allocate resources to their most efficient use, which is coincident to the definition of democracy to distribute political power to its most efficient use. And most important is that the outcome in both cases represents the free will of individuals (Li and Reuveny 2003) Opponents of FDI blame multinational enterprises for insensitively ignoring political rights and civil liberties in the countries of their investments. They accuse FDI of fostering repressive regimes in developing countries (Gallagher 2002). Thus, critics of FDI favor economic sanctions against countries with repressive governments, which are assumed to be a particularly effective means of political change and improvement of human rights. Research Design and Data Unlike the previous empirical studies, my research design has the following features. First of all, I focus on the effect of FDI from democratic countries. Almost all of the studies concentrate on the effect of financial liberalization of FDI to promote 11

Authors: Sun, Feng.
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economic and social progress to the market to vitalize the economy, which is good to
foster social pluralism (Soysa 2003). On the other hand, for the public in developing
countries, those multinational corporations open windows to views of the democratic
world. They have chance to access to more information, supplied not just by their own
government (Li and Reuveny 2003). The most efficient diffusion of democratic norms is
said to work through contact-based mechanisms which involve information flows,
contact in the marketplace, communication networks, etc. Multinational corporations in
developing countries actually provide this mechanism. Citizens become more involved in
the day-to-day economic and social issues, facilitating democracy.
To sum, foreign direct investments are said to allocate resources to their most
efficient use, which is coincident to the definition of democracy to distribute political
power to its most efficient use. And most important is that the outcome in both cases
represents the free will of individuals (Li and Reuveny 2003)
Opponents of FDI blame multinational enterprises for insensitively ignoring
political rights and civil liberties in the countries of their investments. They accuse FDI
of fostering repressive regimes in developing countries (Gallagher 2002). Thus, critics of
FDI favor economic sanctions against countries with repressive governments, which are
assumed to be a particularly effective means of political change and improvement of
human rights.
Research Design and Data
Unlike the previous empirical studies, my research design has the following
features. First of all, I focus on the effect of FDI from democratic countries. Almost all of
the studies concentrate on the effect of financial liberalization of FDI to promote
11


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