Does FDI Affect Social Protests Level?: Panel Granger Causality Test

Abstract

FDI as an the extension of  foreign economic units has significant economic and political impacts on host country. The literature focusing on the political determinants of the FDI inflows does not put emphasis on whether FDI can redetermine the level of political rights, social protests,  riots in the host country. This study brings new insight by adding the relevant literature the issue of the impact of FDI on social protests level in the host countries by bringing the cross country evidence. I refer in the paper some channels through which FDI can affect social demonstrations. The main channel, along with others, I emphasize that if  the growth-enhancing FDI keeps flowing and creating economic growth, voters get more  motivated to vote for the incumbent party. I argue that incumbent government to draw benefits out of strong economic record pumped by FDI inflows, releases the restrictions on the political rights, and eases the harsh repression to avoid political uncertainty which decreases the level of collective action problem and increase the social protest levels. Dumitrescu & Hurlin Panel Granger test is implemented to test FDI-Social protest causality using the relevant data of six European countries. Test results indicate that there is bi-directional causality running from FDI to Social protest level that implies that FDI has an impact on protest level in the host country.

Keywords

• FDI,Social Protests,Collective Action Problem,Dumitrescu & Hurlin Panel Granger test

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