Human Rights Regimes, Reputation, and Foreign Direct Investment

What are the effects of international human rights regimes on foreign direct investment (FDI)? The literature generally shows a negative relationship between human rights violations and FDI, and that international regimes can have effects beyond the parties in the agreement. However, it is not clear how a country's participation in human rights regimes affects investors' decisions. This paper analyzes the effect of participation in international human rights regimes on FDI inflows. I argue that the host country's participation in human rights regimes provides a “reputational umbrella” for investors, and has a positive effect on FDI. This effect is stronger in countries with poorer human rights records. Furthermore, human rights violations do not appear to be punished by investors 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 of participation in human rights regimes on FDI. The findings help to disentangle the reputational mechanism from other possible causal mechanisms. Results are robust to various model specifications, including tests for endogeneity and reverse causality