Political Risk, Democratic Institutions, and Foreign Direct Investment
In this projectI attempt o disentangle hese t t effects focus n therelationship and o between olitical p rb o a regimesnd political isk ydrawingn bothquantir tative nd qualitativeesearchpproaches.pecifically, a a
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I utilizecross-sectional collected rompolitical data t risk nsurancegencies o testhowdomestic olitical i a p a institutionsffect oliticalrisksfor multinational p I this w investors.supplement quantitative analysis ith w interviews ith multinational investors, qualitative a investment location consultants,nd politicalrisk
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insurers o justify ssumptions make in my statt a isticalanalysisand to furtherxplorethe microe mechanismsfmyargument.he twomainfindings o T i lead in thispaperare: (1) democraticnstitutions to r i lowerlevelsof risk,and (2) thisempirical esult s i drivenby the constraintslaced on executivesn p democraticegimes. r on thelinkbetween olitical nstitutions i and p c politicalrisksfacingmultinationalorporations (MNCs).1 Althoughthe 1960s and 1970s
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heraldedwaves of nationalizations,obrin (1984) arguedthatthisperiodwas uniqueand nationalizat
1
tionwasn 't ommon fter 975.2 owever,helargest c a
H
c i wm ri political isk nsurancelaims n history ere adein c t thewakeof thefinancialrisis hatstruck rgentina
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b in 2002 as nationaland state governmentsroke o t contracts nd restrictedhe capitaltransactionsf a firmsMoran2003). Multinationals aynot
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m foreign n that facethe same risksof outright ationalizations b d theyfacedin the 1960s-1970s, ut recent evelopmentsn Bolivia, ussia, ndVenezuela ighlight i a that R h r s m political isks tillaffect ultinationals.3 in e l The existingiterature politicalscience, cois o a nomics, nd management divided n howpolitical considerinstitutions affect heserisks.Specifically, t able debate rages over the impact of democratic a ForeignDirectInvestment nd on d i T i politicalnstitutions
S
f
I utilizecross-sectional collected rompolitical data t risk nsurancegencies o testhowdomestic olitical i a p a institutionsffect oliticalrisksfor multinational p I this w investors.supplement quantitative analysis ith w interviews ith multinational investors, qualitative a investment location consultants,nd politicalrisk
I
insurers o justify ssumptions make in my statt a isticalanalysisand to furtherxplorethe microe mechanismsfmyargument.he twomainfindings o T i lead in thispaperare: (1) democraticnstitutions to r i lowerlevelsof risk,and (2) thisempirical esult s i drivenby the constraintslaced on executivesn p democraticegimes. r on thelinkbetween olitical nstitutions i and p c politicalrisksfacingmultinationalorporations (MNCs).1 Althoughthe 1960s and 1970s
K
heraldedwaves of nationalizations,obrin (1984) arguedthatthisperiodwas uniqueand nationalizat
1
tionwasn 't ommon fter 975.2 owever,helargest c a
H
c i wm ri political isk nsurancelaims n history ere adein c t thewakeof thefinancialrisis hatstruck rgentina
A
b in 2002 as nationaland state governmentsroke o t contracts nd restrictedhe capitaltransactionsf a firmsMoran2003). Multinationals aynot
(
m foreign n that facethe same risksof outright ationalizations b d theyfacedin the 1960s-1970s, ut recent evelopmentsn Bolivia, ussia, ndVenezuela ighlight i a that R h r s m political isks tillaffect ultinationals.3 in e l The existingiterature politicalscience, cois o a nomics, nd management divided n howpolitical considerinstitutions affect heserisks.Specifically, t able debate rages over the impact of democratic a ForeignDirectInvestment nd on d i T i politicalnstitutions
References: Bueno de Mesquita,Bruce, GeorgeW. Downs, and Alastair Jensen, athanM. 2002. "EconomicReform,tateCapture, nd N