Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-05T09:22:50.928Z Has data issue: false hasContentIssue false
  • English
  • Français

Autocratic time horizons and the growth effect of foreign direct investment

Published online by Cambridge University Press:  22 May 2019

Daehee Bak  and
Chungshik Moon
Daehee Bak
Affiliation:
Texas Tech University, Lubbock, TX, USA
Chungshik Moon*
Affiliation:
Chung-Ang University, Seoul, South Korea
*
*Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The positive influence of foreign direct investment (FDI) on host countries' economic growth has been widely debated. Given the mixed empirical evidence, scholars have sought to find the economic preconditions under which FDI spillovers are likely to occur and facilitate economic growth in the host countries. Those preconditions are not exogenously dictated but largely shaped by governments' policy preferences. Particularly in autocracies, an autocrat's policy preferences are the driving force that determines whether a host country is likely to be equipped with growth-friendly institutions and policies. We argue that such economic institutions and policies are dependent on the time horizons of autocrats in power. Our empirical analysis covering 64 autocratic countries from 1970 to 2005 supports our main argument that FDI has a positive effect on growth when autocratic time horizons are sufficiently long, and positive FDI spillovers mainly occur through the protection of property right institutions.

Keywords

Authoritarian regimeFDI spilloversproperty rights
Type
Research Article
Information
Japanese Journal of Political Science , Volume 20 , Issue 3 , September 2019 , pp. 143 - 161
Copyright
Copyright © Cambridge University Press 2019 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ahmed, FZ (2012) The perils of unearned foreign income: aid, remittances, and government survival. American Political Science Review 106, 146–165.Google Scholar
Aitken, BJ and Harrison, AE (1999) Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review 89, 605–618.Google Scholar
Aitken, B, Hanson, GH and Harrison, AE (1997) Spillovers, foreign investment, and export behavior. Journal of International Economics 43, 103–132.Google Scholar
Alfaro, L, Chanda, A, Kalemli-Ozcan, S and Sayek, S (2004) FDI and economic growth: the role of local financial markets. Journal of International Economics, 89–112.Google Scholar
Arellano, M and Bond, S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58, 277–297.Google Scholar
Azman-Saini, WNW, Law, SH and Ahmad, AH (2010) FDI and economic growth: new evidence on the role of financial markets. Economics Letters 107, 211–213.Google Scholar
Bak, D and Moon, C (2016) Foreign direct investment and authoritarian stability. Comparative Political Studies 49, 1998–2037.Google Scholar
Balasubramanyam, VN, Salisu, M and Sapsford, D (1996) Foreign direct investment and growth in EP and IS countries. The Economic Journal, 92–105.Google Scholar
Balasubramanyam, VN, Salisu, M and Sapsford, D (1999) Foreign direct investment as an engine of growth. Journal of International Trade and Economic Development 8, 27–40.Google Scholar
Banks, AS and Wilson, KA (2013) Cross-National Time-Series Data Archive. Jerusalem, Israel: Databanks International.Google Scholar
Barrios, S, Görg, H and Strobl, E (2003) Explaining firms export behaviour: R&D, spillovers and the destination market. Oxford Bulletin of Economics and Statistics 65, 475–496.Google Scholar
Barro, R and Lee, J-W (2013) A New data set of educational attainment in the world. Journal of Development Economics 104, 184–198.Google Scholar
Basu, P, Chakraborty, C and Reagle, D (2003) Liberalization, FDI, and growth in developing countries: a panel cointegration approach. Economic Inquiry 41, 510–516.Google Scholar
Beck, N and Katz, JN (2011) Modeling dynamics in time-series cross section political economy data. Annual Review of Political Science 14, 331–352.Google Scholar
Beck, N, Katz, JN and Tucker, R (1998) Taking time seriously: time-series-cross-section analysis with a binary dependent variable. American Journal of Political Science 42, 1260–1288.Google Scholar
Belkin, A and Schofer, E (2003) Toward a structural understanding of coup risk. Journal of Conflict Resolution 47, 694–620.Google Scholar
Bengoa, M and Sanchez-Robles, B (2003) Foreign direct investment, economic freedom and growth: new evidence from Latin America. European Journal of Political Economy 19, 529–545.Google Scholar
Blake, DJ (2013) Thinking ahead: government time horizons and the legalization of international investment agreements. International Organization 67, 797–827.Google Scholar
Blalock, G and Simon, DH (2009) Do all firms benefit equally from downstream FDI? The moderating effect of local suppliers capabilities on productivity gains. Journal of International Business Studies 40, 1095–1112.Google Scholar
Blomström, M (1986) Foreign investment and productive efficiency: the case of Mexico. The Journal of Industrial Economics 35, 97–110.Google Scholar
Blomström, M and Kokko, A (1998) Multinational corporations and spillovers. Journal of Economic Surveys 12, 247–277.Google Scholar
Blundell, R and Bond, S (1998) Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115–143.Google Scholar
Borensztein, E, De Gregorio, J and Lee, J-W (1998) How does foreign direct investment affect economic growth? Journal of International Economics 45, 115–135.Google Scholar
Buckley, PJ, Wang, C and Clegg, J (2007) The impact of foreign ownership, local ownership and industry characteristics on spillover benefits from foreign direct investment in China. International Business Review 16, 142–158.Google Scholar
Bueno de Mesquita, B and Smith, A (2010) Leader survival, revolutions, and the nature of government finance. American Journal of Political Science 54, 936–950.Google Scholar
Carkovic, M and Levine, R (2005) Does foreign direct investment accelerate economic growth? In Graham, EM, Moran, TH and Blomström, M (eds), Does Foreign Direct Investment Promote Development? Washington, DC: Institute for International Economics, pp. 195–220.Google Scholar
Caselli, F (2005) Accounting for cross-country income differences. In Aghion, P and Durlauf, SN (eds), Handbook of Economic Growth, vol. 1A, Amsterdam: Elsevier, pp. 679–741.Google Scholar
Chang, E and Golden, MA (2007) Electoral systems, district magnitude and corruption. British Journal of Political Science 37, 115–137.Google Scholar
Clague, C, Keefer, P, Knack, S and Olson, M (1996) Property and contract rights in autocracies and democracies. Journal of Economic Growth 1, 243–276.Google Scholar
Clague, C, Keefer, P, Knack, S and Olson, M (1999) Contractintensive money: contract enforcement, property rights, and economic performance. Journal of Economic Growth 4, 185–211.Google Scholar
Damijan, JP, Rojec, M, Majcen, B and Knell, M (2013) Impact of firm heterogeneity on direct and spillover effects of FDI: micro-evidence from ten transition countries. Journal of Comparative Economics 41, 895–922.Google Scholar
De Mello, LR Jr (1997) Foreign direct investment in developing countries and growth: a selective survey. Journal of Development Studies 34, 1–34.Google Scholar
De Mello, LR Jr (1999) Foreign direct investment-led growth: evidence from time series and panel data. Oxford Economic Papers 51, 133–151.Google Scholar
Durham, JB (2004) Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. European Economic Review 48, 285–306.Google Scholar
Duttaray, M, Dutt, AK and Mukhopadhyay, K (2008) Foreign direct investment and economic growth in less developed countries: an empirical study of causality and mechanisms. Applied Economics 40, 1927–1939.Google Scholar
Elias, VJ (1990) Sources of Growth: A Study of Seven Latin American Countries. San Francisco, CA: ICS Press.Google Scholar
Fosfuri, A, Motta, M and Rønde, T (2001) Foreign direct investment and spillovers through workers’ mobility. Journal of International Economics 53, 205–222.Google Scholar
Geddes, B, Wright, J and Frantz, E (2014) New data Set: autocratic breakdown and regime transitions. Perspectives on Politics 12, 313–331.Google Scholar
Gleditsch, NP, Wallensteen, P, Eriksson, M, Sollenberge, M and Strand, H (2002) Armed conflict 1946–2001: a New dataset. Journal of Peace Research 39, 615–637.Google Scholar
Goemans, HE, Gleditsch, KS and Chiozza, G (2009) Introducing Archigos: a dataset of political leaders. Journal of Peace Research 46, 269–283.Google Scholar
Görg, H and Greenaway, D (2004) Much ado about nothing? Do domestic firms really benefit from foreign direct investment? The World Bank Research Observer 19, 171–197.Google Scholar
Ha, YJ and Giroud, A (2015) Competence-creating subsidiaries and FDI technology spillovers. International Business Review 24, 605–614.Google Scholar
Haddad, M and Harrison, A (1993) Are there positive spillovers from direct foreign investment?: evidence from panel data for morocco. Journal of Development Economics 42, 51–74.Google Scholar
Havranek, T and Irsova, Z (2011) Estimating vertical spillovers from FDI: why results vary and what the true effect is. Journal of International Economics 85, 234–244.Google Scholar
Hermes, N and Lensink, R (2003) Foreign direct investment, financial development and economic growth. Journal of Development Studies 40, 142–163.Google Scholar
Heston, AH, Summers, R and Aten, B (2011) Penn World Table Version 7.0. Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania.Google Scholar
Holtz-Eakin, D, Newey, W and Rosen, HS (1988) Estimating vector autoregressions with panel data. Econometrica 56, 1371–1395.Google Scholar
Iršová, Z and Havránek, T (2013) Determinants of horizontal spillovers from FDI: evidence from a large meta-analysis. World Development 42, 1–15.Google Scholar
Javorcik, BS (2004) Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review 94, 605–627.Google Scholar
Javorcik, BS and Spatareanu, M (2011) Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors. Journal of Development Economics 96, 126–138.Google Scholar
Jensen, NM (2003) Democratic governance and multinational corporations: political regimes and inflows of foreign direct investment. International Organization 57, 587–616.Google Scholar
Jong Il, C (2003) Do foreign direct investment and gross domestic investment promote economic growth? Review of Development Economics 1, 44–57.Google Scholar
Kerner, A (2014) What we talk about when we talk about foreign direct investment. International Studies Quarterly 58, 804–815.Google Scholar
Li, Q (2009 a) Democracy, autocracy, and expropriation of foreign direct investment. Comparative Political Studies 42, 1098–1127.Google Scholar
Li, Q (2009 b) Outlier, measurement, and the democracy-FDI controversy. Quarterly Journal of Political Science 4, 167–181.Google Scholar
Li, Q and Resnick, A (2003) Reversal of fortunes: democratic institutions and foreign direct investment inflows to developing countries. International Organization 57, 175–211.Google Scholar
Li, X and Liu, X (2005) Foreign direct investment and economic growth: an increasingly endogenous relationship. World Development 33, 393–407.Google Scholar
Mansfield, E (1994) Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer. International Finance Corporation Discussion Paper (19).Google Scholar
Maskus, KE (1994) Intellectual property rights and economic development. Case Western Reserve Journal of International Law 32, 471–506.Google Scholar
McGuire, MC and Olson, M (1996) The economics of autocracy and majority rule: the invisible hand and the use of force. Journal of Economic Literature 34, 72–96.Google Scholar
Moon, C (2015) Foreign direct investment, commitment institutions, and time horizon: how some autocrats do better than others? International Studies Quarterly 59, 344–356.Google Scholar
Morrison, K (2009) Oil, Non-Tax revenue, and the redistributional foundations of regime stability. International Organization 63, 107–138.Google Scholar
Nair-Reichert, U and Weinhold, D (2001) Causality tests for cross-country panels: a new look at FDI and economic growth in developing countries. Oxford Bulletin of Economics and Statistics 63, 153–171.Google Scholar
Nickell, S (1981) Biases in dynamic models with fixed effects. Econometrica 49, 1417–1426.Google Scholar
OECD (2015) International Development Statistics On-line. Available at http://www.oecd.org/dac/stats/data.htm.Google Scholar
Olofsdotter, K (1998) Foreign direct investment, country capabilities and economic growth. Weltwirtschaftliches Archiv 134, 534–547.Google Scholar
Olson, M (1991) Autocracy, democracy, and prosperity. In Zeckhauser, RJ (ed.), Strategy and Choice. Cambridge, Mass: MIT Press, pp. 131–157.Google Scholar
Olson, M (1993) Dictatorship, democracy, and development. American Political Science Review 87, 567–576.Google Scholar
Olson, M (2000) Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. New York, NY: Basic Books.Google Scholar
Powell, J (2012) Determinants of the attempting and outcome of coups d’état. Journal of Conflict Resolution 56, 1017–1040.Google Scholar
Powell, J and Thyne, C (2011) Global instances of coups from 1950 to 2010: a new dataset. Journal of Peace Research 48, 249–259.Google Scholar
PRS (2007) International Country Risk Guide: Researchers Data Set. East Syracuse, NY: PRS Group.Google Scholar
Reinhart, CM and Rogoff, KS (2011) From financial crash to debt crisis. American Economic Review 101, 1676–1706.Google Scholar
Roodman, D (2009) How to do xtabond2: an Introduction to difference and system GMM in Stata. The Stata Journal 9, 86–136.Google Scholar
Ross, M (2012) The Oil Curse How Petroleum Wealth Shapes the Development of Nations. Princeton, NJ: Princeton University Press.Google Scholar
Smith, A (2008) The perils of unearned income. Journal of Politics 70, 780–793.Google Scholar
Spencer, JW (2008) The impact of multinational enterprise strategy on indigenous enterprises: horizontal spillovers and crowding out in developing countries. Academy of Management Review 33, 341–361.Google Scholar
Thyne, C (2010) Supporter of stability or agent of agitation? The effect of United States foreign policy on coups in Latin America, 1960–1999. Journal of Peace Research 47, 1–13.Google Scholar
Tian, X (2007) Accounting for sources of FDI technology spillovers: evidence from China. Journal of International Business studies 38, 147–159.Google Scholar
UNCTAD (2010) Bilateral Investment Treaties. New York, Geneva: United Nations: UN.Google Scholar
Wang, M (2009) Manufacturing FDI and economic growth: evidence from Asian economies. Applied Economics 41, 991–1002.Google Scholar
Wang, J-Y and Blomström, M (1992) Foreign investment and technology transfer: a simple model. European Economic Review 36, 137–155.Google Scholar
Wei, Y and Liu, X (2006) Productivity spillovers from R&D, exports and FDI in China's manufacturing sector. Journal of International Business Studies 37, 544–557.Google Scholar
Wright, J (2008) To invest or insure? How authoritarian time horizons impact foreign Aid effectiveness. Comparative Political Studies 41, 971–1000.Google Scholar
Wright, J and Bak, D (2016) Measuring autocratic regime stability. Research and Politics January–March:1–7.Google Scholar
Xu, B (2000) Multinational enterprises, technology diffusion, and host country productivity growth. Journal of Development Economics 62, 477–493.Google Scholar
Zhang, Y, Li, H, Li, Y and Zhou, L-A (2010) FDI spillovers in An emerging market: the role of foreign firms’ country origin diversity and domestic firms’ absorptive capacity. Strategic Management Journal 31, 969–989.Google Scholar