Political Stability Matters

Foreign Direct Investment and Political Instability in Asia

World Foreign Direct Investments (FDI) has grown at a significant rate since the early 1980s.Developing countries are strongly interested in attracting the volume of FDI given that FDI inflows is a source of economic growth. Past evidence show that political stability is one of the most important policy frameworks for FDI flows. This study aims to investigate the impact of political stability on FDI inflows, FDI outflows and FDI inflows performance within three years based on the longitudinal data from 1998 to 2015 spanning 41 countries in Asia. The findings in this paper indicate that political stability is associated with the volume of FDI inflows, especially to low-income countries. The empirical result of this study will be an important contribution to policy implications that can be drawn from the relationship between political stability and foreign direct investment.

Keywords: Foreign Direct Investment, Political Stability, Government

JELClassications: D74, F21, F23, G15, K22

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