Exploring the Relationship between Human Rights and Foreign Direct Investment

Foreign Direct Investment (FDI) is an essential indicator of a country’s development, for which its determinants are an increasingly relevant point of research. Most of these studies focus on the macro-economic determinants as these are considered most important in attracting FDI. However, with the public and private sector increasing their attention to social issues (such as working conditions, fair wage, and the prevention of exploitation) research on social-political factors is on the rise. Following this trend, human rights conditions of a host country are considered an important influence on FDI. Accordingly, this study examines the relationship between human rights conditions and FDI inflow. Specifically, it analyses the influence of the institutional quality of home countries since it is suggested that this has a moderation effect on the relationship of interest. A multi-level regression analysis is conducted thereby analysing 36 host-home country pairs in the year 2018. Human rights conditions are measured by considering physical integrity rights and social and economic rights. Additionally, several control variables are included, based on the already existing FDI determinants in literature. Firstly, the results suggest a negative relationship between FDI and human rights conditions when these are measured as physical integrity rights. Moreover, a negative moderation effect was found for the institutional quality of a home country on this relationship. This indicates that the amount of FDI sent by home countries with a better institutional quality is influenced less by the human rights conditions of a home country compared to home countries with a lower institutional quality. Second, when human rights conditions were measured as social and economic rights a positive relationship was found. However, here no significant effect of the institutional quality of a home country was observed which means that this factor has no noticeable influence on the relationship of interest.