Anyway, Anyhow, Anywhere? Proliferation of Foreign Direct Investment & Its Impact on Democratization

Abstract

Despite overwhelming triumphs at the end of the 20th century, democracy’s forward momentum appears stalled in the 21st century. In the face of economic growth in the developing world and aggressive trade and financial liberalization, this appears to challenge the long held beliefs of modernization theory. This paper seeks to refine modernization theory through a focused investigation of the relationship between foreign direct investment (FDI) and democratic processes. This paper uses three methods of investigation. First it develops a theoretical framework to assess democratic process; Second it conducts a cross-national empirical analysis of correlations between the primary variables: levels of FDI and democracy; Third it engages in a case study of China’s experience of economic dynamism and political stagnation. The paper identifies middle class attitudes, income distribution and overall economic development as key social and economic indicators. It finds that FDI’s capacity to enable democratization depends on whether the host nation leverages FDI as a springboard for widespread economic development and domestic capital accumulation or whether it relies on FDI as a crutch to bear undue responsibility for economic growth. While the first supports the development of an independent capitalist class and progressive pro-democratic social features, the latter exacerbates income inequality and increases citizens’ level of indebtedness to the state, which instead favors conservatism.