The Linkages Between Democracy, Terrorism and Foreign Direct Investments in Developed and Developing Countries

Abstract

In this study, the linkages between political dynamics and foreign direct investment inwards to 118 developed and developing countries over the 2002-2017 period were analysed by the System GMM Panel Model to avoid the potential endogeneity problem. Findings indicate that the most vital positive determinant of FDI inwards is trade liberalization or trade openness. Also, there is no statistically significant relationship between countries’ democratization and freedom level and FDI inwards. However, terrorism hinders FDI directly, especially in developed countries. Therefore, the decision of foreign investors might mainly depend on economic dynamics, which are related to them and host countries rather than politics.