The Effect of Human Rights on FDI: An Empirical Analysis

This thesis investigates the effect of human rights on inward foreign direct investment. A fixed effects model with strongly balanced panel data of 180 countries from 1981 to 2011 is employed. I discover that the impact of human rights on FDI is negative for low-income countries, and positive for high-income countries. The ‘threshold’ value of income (proxied by GDP per capita), where the effect of human rights on FDI transitions from negative to positive, depends on the sample of countries. In the benchmark model, the threshold is 1077 USD. In addition, the higher the income in a host country, the more positive (or less negative) impact do human rights have on FDI. Thus, improvements in human rights increase the inflow of foreign investment relatively more for wealthy countries. These findings emphasise the importance of the relationship between human rights and income, and their joint effect on FDI.