India has developed a positive attitude towards the foreign direct investment (FDI) inflows during the last five years and made several changes in the market conditions, enhanced civil rights and liberties to attract more FDI inflows. This study examines the impact of democracy on FDI inflows in India by employing an autoregressive distributed lag (ARDL) model. For the said purpose, the study uses the annual data from 1980–2017. The findings demonstrate that the democratic setup does not induce FDI inflows in the short run, but there is a positive and significant impact of democracy in the long run. Furthermore, it confirms that gross national income per capita; trade openness, political rights, and civil liberties are significant and positive determinants of FDI inflows in India. Based on findings, this study recommends that India nurture democratic values, property rights security, and values of civil liberty & freedom to appeal for more foreign investment inflows into India progressively.
AdelekeA. I. (2014). FDI-growth nexus in Africa: Does governance matter?Journal of Economic Development, 39(1), 111–135.
2.
AlbornozF., GalianiS., & HeymannD. (2012). Foreign investment and expropriation under oligarchy and democracy. Economics & Politics, 24(1), 24–46.
3.
AliF. A., FiessN., & MacDonaldR. (2010). Do institutions matter for foreign direct investment?Open Economies Re-view, 21(2), 201–219.
4.
ArslanÜ., & ÖktenN. Z. (2010). The relations between FDI and democracy: Evidence from Turkey. International Research Journal of Finance and Economics, 56(2), 111–123.
5.
AsieduE., & LienD. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99–111.
6.
BakloutiN., & BoujelbeneY. (2018). The nexus between democracy and economic growth: Evidence from dynamic simultaneous-equations models. Journal of the Knowledge Economy, 9(3), 980–998.
BevanA., EstrinS., & MeyerK. (2004). Foreign investment location and institutional development in transition economies. International Business Review, 13(1), 43–64.
9.
BezemerD., & Jong-A-PinR. (2013). Democracy, globalization and ethnic violence. Journal of Comparative Economics, 41(1), 108–125.
10.
BhattacharyyaS., & HodlerR. (2010). Natural resources, democracy and corruption. European Economic Review, 54(4), 608–621.
11.
BrownD. S., & MobarakA. M. (2009). The transforming power of democracy: Regime type and the distribution of electricity. American Political Science Review, 103(2), 193–213.
12.
BurkhartR. E. (1997). Comparative democracy and income distribution: Shape and direction of the causal arrow. The Journal of Politics, 59(1), 148–164.
13.
BusseM., & HefekerC. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2), 397–415.
14.
ClarkR. (2012). World-system position and democracy, 1972–2008. International Journal of Comparative Sociology, 53(5–6), 367–399.
15.
DurmazN. (2017). Foreign direct investments, democracy, and economic growth in Turkey. International Journal of Social Economics, 44(2), 232–252.
16.
DuttaN., & RoyS. (2009). The impact of foreign direct investment on press freedom. Kyklos, 62(2), 239–257.
17.
EmersonP. M. (2006). Corruption, competition and democracy. Journal of Development Economics, 81(1), 193–212.
18.
FarazmandH., & MoradiM. (2014). Determinants of FDI: Does democracy matter?Journal of Law and Governance, 9(2), 38–46.
19.
Freedom House. (2005). Annual survey of freedom, country ratings. https://freedomhouse.org/countries/freedom-world/scores
20.
GallagherM. E. (2002). ‘Reform and openness’: Why China’s economic reforms have delayed democracy. World Poli-tics, 54(3), 338–372.
21.
GillisJ. R. (Ed.). (1994). Commemorations: The politics of national identity. Princeton University Press.
22.
GoldarB., & KumariA. (2003). Import liberalization and productivity growth in Indian manufacturing industries in the 1990s. The Developing Economies, 41(4), 436–460.
23.
GosselS. J. (2017). Democratic capital, democratic rights and FDI in Sub-Saharan Africa. Journal of International Develop-ment, 29(8), 1033–1061.
24.
GoyalA., & JhaA. K. (2004). Dictatorship, democracy and institutions: Macro policy in China and India. Economic and Political Weekly, 39(42), 4664–4674.
25.
GrangerC. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37(3), 424–438.
26.
GuerinS. S., & ManzocchiS. (2007). Political regime and vertical vs. horizontal FDI (LLEE Working Paper 49). Luiss Lab of European Economics. https://ssrn.com/abstract=1002593
27.
HaE. (2015). The impact of democracy, government ideology, and globalization on social spending in less developed countries. International Journal of Comparative Sociology, 56(5), 338–365.
28.
HamidI., & JenaP. K. (2020). Linear and non-linear granger causality between foreign direct investment and economic growth: Evidence from India. Copernican Journal of Finance & Accounting, 9(2), 25–44.
29.
HamidI., JenaP. K., & MukhopadhyayD. (2020). Does corruption impede foreign direct investment inflows in India? An empirical investigation. IUP Journal of Applied Economics, 19(3), 45–66.
30.
HamidI., JenaP. K., & MukhopdhyayD. (2020). Should China prefer more foreign direct investment inflows to environmental change?Journal of Public Affairs, e2466. https://doi.org/10.1002/pa.2466
31.
HarmsP., & UrsprungH. W. (2002). Do civil and political repression really boost foreign direct investments?Economic In-quiry, 40(4), 651–663.
32.
HelliwellJ. F. (1994). Empirical linkages between democracy and economic growth. British Journal of Political Science, 24(2), 225–248.
33.
HeniszW. J. (2000). The institutional environment for multinational investment. The Journal of Law, Economics, and Organiza-tion, 16(2), 334–364.
34.
HirstP. (1999). Has globalisation killed social democracy?The Political Quarterly, 70(1), 84–96.
35.
HuangH., & WeiS. J. (2006). Monetary policies for developing countries: The role of institutional quality. Journal of International Economics, 70(1), 239–252.
36.
HussainZ. (2014, November 1). Can political stability hurt economic growth?World Bank Reports. https://blogs.worldbank.org/endpovertyinsouthasia/can-political-stability-hurt-economic-growth
37.
JakobsenJ., & De SoysaI. (2006). Do foreign investors punish democracy? Theory and empirics, 1984–2001. Kyklos, 59(3), 383–410.
38.
JensenN. M. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International Organization, 57(3), 587–616.
39.
JohansenS., & HansenP. R. (1998). Workbook on cointegration. Oxford University Press on Demand.
40.
JohansenS., & JuseliusK. (1990). Maximum likelihood estimation and inference on cointegration—With appucations to the demand for mon-ey. Oxford Bulletin of Economics and Statistics, 52(2), 169–210.
41.
JonesD. M. (2008). Security and democracy: The ASEAN charter and the dilemmas of regionalism in South-East Asia. International Af-fairs, 84(4), 735–756.
42.
KeeferP., & KnackS. (1997). Why don’t poor countries catch up? A cross-national test of an institutional explanation. Economic In-quiry, 35(3), 590–602.
43.
KelsallT. (2003). Governance, democracy and recent political struggles in Mainland Tanzania. Commonwealth & Comparative Poli-tics, 41(2), 55–82.
44.
KraayA., KaufmannD., & MastruzziM. (2010). The worldwide governance indicators: Methodology and analytical issues. The World Bank. info.worldbank.org/governance/wgi/pdf/WGI.pdf
45.
KrishnaP., & MitraD. (1998). Trade liberalization, market discipline and productivity growth: New evidence from India. Journal of development Economics, 56(2), 447–462.
46.
KuceraD. C., & PrincipiM. (2014). Democracy and foreign direct investment at the industry level: Evidence for US multinationals. Review of World Economics, 150(3), 595–617.
47.
LiQ. (2006). Democracy, autocracy, and tax incentives to foreign direct investors: A cross-national analysis. The Journal of Politics, 68(1), 62–74.
48.
LiQ. (2009). Outlier, measurement, and the democracy-FDI controversy. Quarterly Journal of Political Science, 4(2), 167–181.
49.
LiQ., & ResnickA. (2003). Reversal of fortunes: Democratic institutions and foreign direct investment inflows to developing countries. International Organization, 57(1), 175–211.
50.
LipseyR. E. (2000). Inward FDI and economic growth in developing countries. Transnational Corporations, 9(1), 61–95.
51.
LipseyR. E., FeenstraR. C., HahnC. H., & HatsopoulosG. N. (1999). The role of foreign direct investment in international capital flows. In International capital flows (pp. 307–362). University of Chicago Press.
52.
MadaniS., & NobakhtM. (2014). Political regimes and FDI inflows: Empirical evidence from upper middle income countries. Journal of Finance and Economics, 2(3), 75–82.
53.
MalikaneC., & ChitambaraP. (2017). Foreign direct investment, democracy and economic growth in southern Africa. African Development Review, 29(1), 92–102.
54.
MathurA., & SinghK. (2013). Foreign direct investment, corruption and democracy. Applied Economics, 45(8), 991–1002.
55.
NarayanP. K. (2004). Do public investments crowd out private investments? Fresh evidence from Fiji. Journal of Policy Model-ing, 26(6), 747–753.
56.
NarayanP. K. (2008). An econometric model of the determinants of private investment and a CGE model of the impact of democracy on investment and economic growth in Fiji. International Journal of Social Economics, 35(12), 1017–1031
57.
NorthD. (1990). Institutions, institutional change and economic performance. Cambridge University Press.
58.
OlofsdotterK. (1998). Foreign direct investment, country capabilities and economic growth. Weltwirtschaftliches Ar-chiv, 134(3), 534–547.
59.
OlsonM., SarnaN., & SwamyA. V. (2000). Governance and growth: A simple hypothesis explaining cross-country differences in productivity growth. Public Choice, 102(3–4), 341–364.
60.
OnafoworaO., & OwoyeO. (2019). Public debt, foreign direct investment and economic growth dynamics. International Journal of Emerging Markets, 15(5), 769–791.
61.
PandyaS. S. (2008). Trading spaces: The political economy of foreign direct investment regulation. Harvard University.
62.
PattiD. M. A., & NavarraP. (2009). Globalization, democratization and economic growth. Applied Economics Letters, 16(7), 731–734.
63.
PeresM., AmeerW., & XuH. (2018). The impact of institutional quality on foreign direct investment inflows: Evidence for developed and developing countries. Economic Research-Ekonomska Istraživanja, 31(1), 626–644.
64.
PerssonT., & TabelliniG. (2006). Democracy and development: The devil in the details. American Economic Review, 96(2), 319–324.
65.
PesaranH. H., & ShinY. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29.
66.
PesaranM. H., & PotterS. M. (1996). Impulse response analysis in nonlinear multivariate models. Journal of Econometrics, 74(1), 119–147.
67.
PesaranM. H., & ShinY. (1998). An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Mono-graphs, 31(2), 371–413.
68.
PesaranM. H., & SmithR. P. (1998). Structural analysis of cointegrating VARs. Journal of Economic Surveys, 12(5), 471–505.
69.
PritchettL., & SethiG. (1994). Tariff rates, tariff revenue, and tariff reform: Some new facts. The World Bank Economic Re-view, 8(1), 1–16.
70.
QuinnD. P., & WoolleyJ. T. (2001). Democracy and national economic performance: The preference for stability. American Journal of Political Science, 32(1), 634–657.
71.
RehmanC. A., IlyasM., AlamH. M., & AkramM. (2011). The impact of infrastructure on foreign direct investment: The case of Pakistan. International Journal of Business and Management, 6(5), 268–276.
72.
Rivera-BatizF. L., & Rivera-BatizL. A. (2002). Democracy, participation, and economic development: An introduction. Review of Development Economics, 6(2), 135–150.
SchulerD. A., & BrownD. S. (1999). Democracy, regional market integration, and foreign direct investment: Lessons from Costa Rica. Business & Society, 38(4), 450–473.
75.
SinghaniaM., & GuptaA. (2011). Determinants of foreign direct investment in India. Journal of International Trade Law and Policy, 10(1), 64–82.
76.
SobhanR. (2003). Globalization and the challenge to democracy. International Journal of Development Issues, 2(2), 1–14.
77.
TiwariA. K. (2013). Taxation, economic growth and political stability. Transition Studies Review, 20(1), 49–61.
78.
TumanJ. P., & EmmertC. F. (2004). The political economy of US foreign direct investment in Latin America: A reappraisal. Latin American Research Review, 12(1), 9–28.
79.
UNCTAD. (2017). World Investment Report. https://unctad.org/webflyer/trade-and-development-report-2017
80.
VirmaniA. (2005). Customs tariff reform. Economic and Political Weekly, 37(44–45), 1006–1008.
81.
ZhengP. (2009). A comparison of FDI determinants in China and India. Thunderbird International Business Review, 51(3), 263–279.
