Journal of Political Sciences & Public Affairs
Open Access

Abstract

Similarities Attract: Political Regimes and Foreign Direct Investments

Trung A Dang

According to a well-established and substantively significant finding in the interna-tional political economy literature, democratic host countries are better able to attract foreign direct investment (FDI). However, I show that the supposed association be-tween democracy and FDI disappears once I control for a selection bias in which FDI tends to originate from democratic home countries. I then provide empirical evidence to support a novel claim that it is not democracy by itself but political similarity be-tween the home and host countries that attracts FDI. Additionally, I suggest a causal explanation for why FDI tends to flow between politically similar countries.