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<p>This paper investigates whether happier countries attract larger inflows of FDI. Using panel data for 158 countries covering the period 2003–2020, we expand the traditional literature on FDI determinants by integrating happiness as a potential soft location factor. Methodologically, we employ pooled OLS with clustered standard errors, two-way fixed effects models to account for unobserved heterogeneity and global shocks, and Wooldridge’s control-function approach to address endogeneity and reverse causality. The results indicate that happiness impacts positively FDI net inflows in pooled regressions, but this effect becomes insignificant under two-way fixed effects, suggesting that happiness functions more as a cross-country signal of institutional and social stability rather than as a within-country determinant of FDI flows. In addition, the findings indicate that happiness functions as a stable cross-country attribute rather than a dynamic or lagged determinant of FDI, reinforcing its role as a soft, perception-based or reputational signal of national well-being and quality of life rather than a causal long-run driver. These findings contribute to international business literature by reframing happiness as an intangible location advantage complementing economic fundamentals.</p>

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Do multinational enterprises invest more in happier countries? an empirical investigation using panel data on FDI in 158 countries

  • 期刊论文

  • 发表日期：

    2025年12月15日

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  • Jihad Ait Soussane,
  • Abdelghani Chehayebat,
  • Hamza Krimis,
  • Bachir Lakhdar

摘要

This paper investigates whether happier countries attract larger inflows of FDI. Using panel data for 158 countries covering the period 2003–2020, we expand the traditional literature on FDI determinants by integrating happiness as a potential soft location factor. Methodologically, we employ pooled OLS with clustered standard errors, two-way fixed effects models to account for unobserved heterogeneity and global shocks, and Wooldridge’s control-function approach to address endogeneity and reverse causality. The results indicate that happiness impacts positively FDI net inflows in pooled regressions, but this effect becomes insignificant under two-way fixed effects, suggesting that happiness functions more as a cross-country signal of institutional and social stability rather than as a within-country determinant of FDI flows. In addition, the findings indicate that happiness functions as a stable cross-country attribute rather than a dynamic or lagged determinant of FDI, reinforcing its role as a soft, perception-based or reputational signal of national well-being and quality of life rather than a causal long-run driver. These findings contribute to international business literature by reframing happiness as an intangible location advantage complementing economic fundamentals.