Political Instability and the Patterns of Foreign Direct Investment: Fresh Empirical Evidence from Developing Economies

Abstract

The major objective of this study is to empirically analyze the impact of political instability on the patterns of foreign direct investment (FDI) in developing nations. Leveraging data from 24 countries across 10 regions over a 41-year period, we employ the first-difference generalized method of moments (GMM) and fixed-random effect models to analyze the data and robustness of our regression models. Our findings unveil a significant negative impact of political instability on FDI within the selected economies. Additionally, inflation, domestic savings, and exchange rates are revealed as factors diminishing FDI inflows, while GDP exerts a positive influence on FDI trends. To address these challenges and promote investment in developing countries, the study underscores the significance of implementing the MSJELT plan, which focuses on banking, institutional, and individual-level reforms.