Whistleblower Protection Laws and Foreign Direct Investment in Developing Countries: Evidence From Staggered Adoption

ABSTRACT Does the adoption of whistleblower protection legislation attract foreign direct investment in developing countries? Although a large literature documents the importance of institutional quality for FDI, the role of specific anticorruption legal instruments remains largely unexplored. We address this gap by exploiting the staggered adoption of dedicated whistleblower protection laws across 114 developing countries between 1996 and 2023. Using the heterogeneity‐robust difference‐in‐differences method, we estimate that whistleblower‐law adoption raises FDI inflows by approximately 1.1 percentage points of GDP, an effect that emerges gradually and becomes statistically significant five to seven years after adoption. The estimate is significant under the inference appropriate to this estimator (analytic and multiplier‐bootstrap p < 0.05), is reproduced almost exactly by the Sun and Abraham estimator and survives a battery of placebo tests of which the timing‐based placebo strongly supports the design; pretreatment parallel trends cannot be rejected. Because identification rests on 18 treated countries, we are measured in interpretation: the effect is robust in sign and magnitude across alternative control groups, the exclusion of fragile, small and resource‐rich states and the exclusion of countries with major follow‐on trade or anticorruption reforms, but randomisation‐inference and influence diagnostics indicate it is best read as economically meaningful and directionally robust rather than as a precisely pinned‐down causal magnitude. Mechanism tests reveal that the FDI response operates through institutional signalling rather than measurable governance improvement: whistleblower laws do not significantly affect corruption control or rule of law indicators, but do improve political stability perceptions. These findings are consistent with a signalling framework in which legislative adoption conveys anticorruption commitment to foreign investors, independent of immediate governance change. Our results contribute to the political economy of institutional reform by demonstrating that specific legal instruments can serve as credible commitment devices that influence international capital flows.