A Sectoral Analysis of Human Rights and FDI: Does Industry Type Matter?

Abstract

While there is a considerable degree of consensus about the economic determinants of foreign direct investment (FDI), the role of socio-political factors has only recently come under scrutiny. In this study, we build upon research on one such factor, human rights. Specifically, whereas extant research into FDI examines aggregate investment indices, we seek to disaggregate the analysis of FDI to further assess the role of human rights, namely physical integrity rights, in investment decisions. As FDI is a heterogeneous enterprise, we posit that the importance of human rights varies in part due to the nature of the industrial sector. In particular, two factors that vary across industrial sectors—skill requirements and the degree to which societal acceptance or “social license” is sought—likely increase the salience of human rights concerns in investment decisions. To empirically assess these linkages, we analyze U.S. FDI across 10 different sectors. We find human rights to be a significant determinant of FDI across sectors that value higher skills and integration within the host society.

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