Human Rights Regimes, Reputation, and Foreign Direct Investment

Abstract

What are the effects of international human-rights regimes on foreign direct investment (FDI)? Existing scholarship generally suggests a negative relationship between human-rights violations and FDI. Furthermore, research shows that international regimes can have effects on third parties such as non-member countries and other nonstate actors. However, it remains unclear how a country’s participation in human-rights regimes could affect investors’ decisions. I argue that host country participation in human-rights regimes provides a “reputational umbrella” for investors and therefore positively affects FDI. This effect proves stronger in countries with poor human rights records. Interestingly, investors appear not to punish human-rights violations if the state is a party to many human-rights regimes. Empirical analyses on a sample of 135 developing countries, from 1982 to 2011, provide support for the existence of these direct and indirect effects. The findings help to disentangle reputational effects from other possible causal mechanisms. Results are robust to various model specifications, including tests for endogeneity and reverse causality.