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FDI and Democratic Governance, Evidence from a Panel VAR Model
Unformatted Document Text:  In the views of the scholars who support the causal effect of economic globalization on democracy, political freedom is always associated with economic freedom, both cases representing the free will of people. They believe economically, globalization boosts economic growth, reduces income inequality and poverty, and increases the size of the middle class, and promotes education, all of which provides mature pre-condition for democratization (Platner 1993, Weizman 1993, Lipset 1994). Politically, globalization enhances the contacts with the developed economies, spreads democratic ideas and values, pleads for the rule of law, transparency and accountability, calls for political stability, and pushes the authoritarian states to decentralize power. In a word, in order to integrate the world economy, less developed countries face greater pressures from international business for political liberalization (Oneal and Russett 1997, Bhagwati 1994, Schmitter 1996). The critics of globalization argue that globalization deteriorates political environment in developing countries by destroying the local economy, increasing income inequality, draining capital, technology and skilled labors, manipulating information supplied to the public, deepening ethnic and class cleavages and diminishing the national- cultural basis of democracy (Przeworski 1991, Robertson 1992, Martin and Schumann 1997). The third proposition about the political effects of globalization denies possible nexus between globalization and democracy. The scholars argue that the effect of globalization is exaggerated because the world economy is not as integrated as commonly believed, especially for less developed area (Scharpf 1991, Wade 1996). 6

Authors: Sun, Feng.
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In the views of the scholars who support the causal effect of economic
globalization on democracy, political freedom is always associated with economic
freedom, both cases representing the free will of people. They believe economically,
globalization boosts economic growth, reduces income inequality and poverty, and
increases the size of the middle class, and promotes education, all of which provides
mature pre-condition for democratization (Platner 1993, Weizman 1993, Lipset 1994).
Politically, globalization enhances the contacts with the developed economies, spreads
democratic ideas and values, pleads for the rule of law, transparency and accountability,
calls for political stability, and pushes the authoritarian states to decentralize power. In a
word, in order to integrate the world economy, less developed countries face greater
pressures from international business for political liberalization (Oneal and Russett 1997,
Bhagwati 1994, Schmitter 1996).
The critics of globalization argue that globalization deteriorates political
environment in developing countries by destroying the local economy, increasing income
inequality, draining capital, technology and skilled labors, manipulating information
supplied to the public, deepening ethnic and class cleavages and diminishing the national-
cultural basis of democracy (Przeworski 1991, Robertson 1992, Martin and Schumann
1997).
The third proposition about the political effects of globalization denies possible
nexus between globalization and democracy. The scholars argue that the effect of
globalization is exaggerated because the world economy is not as integrated as commonly
believed, especially for less developed area (Scharpf 1991, Wade 1996).
6


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