Foreign direct investment and authoritarian regimes : an empirical analysis




Awapara, Omar

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Recent work on foreign direct investment has emphasized the weight of political factors in explaining variation across countries. While the aspects of democracies that make them more or less favorable to FDI have been studied and identified, we know less about what differentiates investment levels among authoritarian regimes. In this paper, I seek to unpack variation in FDI flows among such regimes by distinguishing different types of autocracies. I argue that regimes convey different signals regarding political risk to potential foreign investors via both institutional attributes and forms of exercising authority. Specifically, I expect regimes ruled by a collective body, such as military and single-party regimes, to be less volatile and more predictable in their decision-making due to the presence of several actors with veto power. In addition, I also expect regimes with predictable succession rules to transmit lower levels of risk to foreign investors due to the smaller probability of a destabilizing process of leadership turnover. I test these expectations using a time-series cross-sectional data set containing economic, political, and social information from 104 countries over the period 1980-2010, and find support for the veto hypothesis but not for the leadership succession one.




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