Autocratic time horizons and the growth effect of foreign direct investment

Abstract

The positive influence of foreign direct investment (FDI) on host countries' economic growth has been widely debated. Given the mixed empirical evidence, scholars have sought to find the economic preconditions under which FDI spillovers are likely to occur and facilitate economic growth in the host countries. Those preconditions are not exogenously dictated but largely shaped by governments' policy preferences. Particularly in autocracies, an autocrat's policy preferences are the driving force that determines whether a host country is likely to be equipped with growth-friendly institutions and policies. We argue that such economic institutions and policies are dependent on the time horizons of autocrats in power. Our empirical analysis covering 64 autocratic countries from 1970 to 2005 supports our main argument that FDI has a positive effect on growth when autocratic time horizons are sufficiently long, and positive FDI spillovers mainly occur through the protection of property right institutions.

What attracts foreign direct investment into autocratic states? Regime time horizon and institutional design

“…Future research could extend this line of enquiry to understand how regime time horizon influences the institutional design to not only attract a high volume of inward FDI, but also to facilitate the realisation of expected positive outcomes. One possibility is that autocrats with longer time horizons have incentives to provide better policy environments in which FDI spillovers are likely to occur (Bak & Moon, 2019). Second, while this study looked at institutional design and inward FDI at the national level, it is probable that there could be substantial differences between industry sectors, where certain institutional designs may be more effective in attracting FDI in certain sectors than in others.…”