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Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment

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  • Jensen, Nathan M.

Abstract

Foreign direct investment (FDI) is an important element of the global economy and a central component of economic development strategies of both developed and developing countries. Numerous scholars theorize that the economic benefits of attracting multinational corporations come at tremendous political costs, arguing that democratic political systems attract lower levels of international investment than their authoritarian counterparts. Using both cross-sectional and time-series cross-sectional tests of the determinants of FDI for more than 100 countries, I generate results that are inconsistent with these dire predictions. Democratic political systems attract higher levels of FDI inflows both across countries and within countries over time. Democratic countries are predicted to attract as much as 70 percent more FDI than their authoritarian counterparts. In a final empirical test, I examine how democratic institutions affect country credibility by empirically analyzing the link between democracy and sovereign debt risk for about eighty countries from 1980 to 1998. These empirical tests challenge the conventional wisdom on the preferences of multinationals for authoritarian regimes.

Suggested Citation

  • Jensen, Nathan M., 2003. "Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment," International Organization, Cambridge University Press, vol. 57(03), pages 587-616, June.
  • Handle: RePEc:cup:intorg:v:57:y:2003:i:03:p:587-616_57
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    References listed on IDEAS

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    1. Antoine Gervais & J. Bradford Jensen, 2015. "The Tradability of Services: Geographic Concentration and Trade Costs," Working Paper Series WP15-12, Peterson Institute for International Economics.
    2. Alan S. Blinder & Alan B. Krueger, 2009. "Alternative Measures of Offshorability: A Survey Approach," Working Papers 1169, Princeton University, Department of Economics, Center for Economic Policy Studies..
    3. Edward E. Leamer, 2007. "A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L Friedman's The World is Flat," Journal of Economic Literature, American Economic Association, pages 83-126.
    4. repec:cup:apsrev:v:83:y:1989:i:02:p:567-573_08 is not listed on IDEAS
    5. repec:cup:apsrev:v:105:y:2011:i:01:p:166-188_00 is not listed on IDEAS
    6. Antoine Gervais & J. Bradford Jensen, 2013. "The Tradability of Services: Geographic Concentration and Trade Costs," NBER Working Papers 19759, National Bureau of Economic Research, Inc.
    7. repec:cup:apsrev:v:96:y:2002:i:03:p:593-608_00 is not listed on IDEAS
    8. Alan S. Blinder & Alan B. Krueger, 2013. "Alternative Measures of Offshorability: A Survey Approach," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 97-128.
    9. J. Bradford Jensen, 2011. "Global Trade in Services: Fear, Facts, and Offshoring," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6017.
    10. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
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