CHAPTER 3 ​ METHODOLOGY 3.1 Research Design This study applies a quantitative research design with panel data analysis to analyze the relationship between political stability and FDI across 140 countries, classified as autocratic or democratic. Unlike previous studies focused on specific regions like Latin America or Asia, this research employs a global perspective, accounting for diverse political and economic conditions. By comparing the effects of stability on FDI in democratic and autocratic regimes, the study aims to unveil broader patterns and provide generalizable insights that are highly relevant for shaping global investment strategies. The 2012–2022 period is chosen due to major events like the post-2011 financial crisis and COVID-19 pandemic, which caused significant fluctuations in political stability and FDI. These events show differing responses, such as European democracies stabilizing markets through policy reforms and Middle Eastern autocracies boosting economies with infrastructure projects. This timeframe allows for analyzing global crises' impacts on FDI and the contrasting strategies of political regimes in maintaining stability and recovery. 3.2 Variables 3.2.1 Dependent Variable FDI inflows : The dependent variable is measured as net inflows (BoP, current US$) from the World Bank’s WDI. Log-transformed values address skewness, using only positive FDI inflows since logarithms cannot handle negatives. Unlike FDIGDP, which normalizes by economic size, this measure highlights the absolute monetary impact of investments. 3.2.2 Key Independent Variable Political stability : This variable is a key factor in understanding investor risk, which is scored from -2.5 (unstable) to 2.5 (stable) and sourced from the WGI. Widely used in studies like Bailey (2018), it focuses on political instability and violence, making it more relevant than broader indices like the Global Peace Index. 22 3.2.3 Moderator Variable Autocracy: The binary autocracy variable, sourced from the Regimes of the World (RoW) dataset, differentiate between democratic (0) and autocratic (1) regimes. This enables analysis of how political context impacts FDI. The change of regime type for countries within the period will be taken into account in the analysis. 3.2.4 Control Variables As mentioned in the literature review, there are a couple of variables other than political stability that can have a significant effect on FDI, which are the GDP growth rate, inflation rate, trade openness, and property rights. Thus in order to comprehend the relationship of political stability and FDI we have to control these variables. Gross Domestic Product (GDP) growth data, from the World Bank, measures a country’s overall economic activity and is expressed as an annual percentage change in real GDP. This variable has been used by many researchers because it is one of the most well-known datasets. In light of evaluating various research using the same variable, the relationship between GDP Growth Rate and FDI Inflow should be positive. Inflation rate data from the IMF, measured as the percent change in the average CPI, is a key indicator of macroeconomic stability.