The Influence of Political Stability on Foreign Direct Investment (FDI)
DOI:
https://doi.org/10.47941/ijdcs.2165Keywords:
Political Stability, Foreign Direct Investment (FDI), Institutional Quality, Investor Confidence, Economic DevelopmentAbstract
Purpose: The general objective of the study was to explore the influence of political instability on Foreign Direct Investment (FDI).
Methodology: The study adopted a desktop research methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library.
Findings: The findings reveal that there exists a contextual and methodological gap relating to the influence of political instability on Foreign Direct Investment (FDI). Preliminary empirical review revealed that political stability was crucial in attracting Foreign Direct Investment (FDI) by providing a predictable and secure environment, reducing risks associated with political unrest and policy changes. Stable political environments ensured the protection of property rights, contract enforcement, and consistent application of laws, which boosted investor confidence. Conversely, political instability, characterized by government changes and civil unrest, deterred FDI by creating an unpredictable business climate. The findings highlighted the importance of political stability for economic development, suggesting that countries prioritizing stable governance and robust institutions were more successful in attracting and retaining foreign investments.
Unique Contribution to Theory, Practice and Policy: The Institutional Theory, The Eclectic Paradigm (OLI Framework) and the Political Risk Theory may be used to anchor future studies on political instability on Foreign Direct Investment (FDI). The study recommended that countries strengthen their political institutions and legal frameworks to ensure stability and predictability, thereby attracting more FDI. Enhancing institutional quality, combating corruption, and improving the rule of law were deemed essential for creating a stable investment climate. Practically, governments were advised to communicate effectively with investors, offer incentives, and address political risks through dialogue. Policy-wise, comprehensive reforms to promote stable governance, transparency, and conflict resolution were suggested. Additionally, regional and international cooperation was encouraged to share best practices and support political stability, ultimately fostering a more favorable environment for foreign investment and sustainable economic growth.
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