Ist Demokratie ein Standortvorteil?
Marco Brandmann
May 2026

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Abstract

Is Democracy a Locational Advantage?

This discussion paper addresses the question of whether democracy influences the investment decisions of multinational enterprises. Drawing upon existing literature including the Strategy Tripod framework by Peng et al. (2008), three hypotheses are derived, distinguishing between the degree of democracy, the quality of government, and economic policy attractiveness. In this study, investment decisions are represented by foreign direct investment. As part of the empirical analysis, two models, distinguished by their use of different democracy variables, are examined for the period spanning 2010 to 2023. In both models, a fixed-effects regression is conducted, incorporating year dummies and Driscoll-Kraay standard errors. The results of the empirical analysis indicate that, in contrast to a country’s quality of government and economic policy attractiveness, the degree of democracy exerts no significant influence on the location decisions of multinational enterprises. While the mere presence of democracy does not constitute a location factor for companies regarding their investment decisions, the reliability and effectiveness of governments as well as economic policy attractiveness play a decisive role in this regard.