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

Year 2017, Volume: 1 Issue: 3, 56 - 67, 30.09.2017

Deniz Güvercin

https://doi.org/10.25295/fsecon.326770

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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