Foreign Direct Investment, Commitment Institutions, and Time Horizon: How Some Autocrats Do Better than Others

Abstract

Why do some autocratic governments do better than others in attracting foreign direct investment (FDI)? The received wisdom holds that democracies enjoy advantages over autocracies when it comes to attracting FDI. But there exist autocratic countries that attract substantial amounts of FDI. For example, during the last two decades, about half of the top 20 non-OECD host countries are nondemocratic. Focusing on the role of commitment institutions by which host countries can commit their protection of foreign assets, I argue that autocrats with long time horizons can provide stronger institutions to protect property rights. This allows them to attract more FDI. Using an error correction model (EDM) covering autocratic countries from 1970 to 2008, I find evidence that strongly supports my argument. These findings suggest that what matters to foreign investors is not regime type per se but specific institutional features of the host country. Insofar as host countries provide sound institutions to protect foreign assets, they would be able to attract more foreign investment.

Corporate political connections in global strategy

“…To better understand such idiosyncrasies, business researchers should further engage with the political science literature. For example, depending on the regime's time horizon, autocratic states can vary substantially on their priorities and attitudes toward foreign investors (Moon, ), thus influencing how foreign investors align their CPC activities with the incentives of the autocratic states. Overall, global strategy research can benefit from deeper engagement with the political science literature in identifying strategies for MNEs to engage with local stakeholders.…”

Political Parties and Foreign Direct Investment Inflows among Developing Countries

“…The data come from UNCTAD (United Nations Conference on Trade and Development). v Consistent with other studies (e.g., Moon, 2015) we transform the logged value of the FDI variable to account for 0 and negative values of FDI in the following way:…”

“…Extant literature on the politics of FDI inflows can be summarized into two broad strands of research where the first focuses on differences between political regimes (e.g., Jensen 2003;Li 2006;Oneal 1994;Mathur and Singh 2013) whereas the second analyzes institutional determinants (e.g., Staats and Biglaiser 2012;Barassi and Zhou 2012;Harms and Ursprung 2002;Blanton and Blanton 2007;Moon 2015) that transcend a regime-type explanation. The first strand of research, which preceded the second, was in a nutshell an attempt to encapsulate political determinants of FDI into political regime types.…”

Are ICTs Democratizing Dictatorships? New Media and Mass Mobilization*

“…As many studies of authoritarian durability have shown, not all dictatorships are equally vulnerable to threats to their reign (Geddes, , ; Svolik, ; Wright and Escribà‐Folch, ). Many factors can influence leaders’ perceptions of the risks they face, affecting their time horizon, which influences the policies and investments they pursue (Charron and Lapuente, ; Moon, ; Wright, ). Leaders and regimes with longer time horizons more likely invest in developing the country's economy and better attract foreign direct investment (Moon, ).…”

“…Many factors can influence leaders’ perceptions of the risks they face, affecting their time horizon, which influences the policies and investments they pursue (Charron and Lapuente, ; Moon, ; Wright, ). Leaders and regimes with longer time horizons more likely invest in developing the country's economy and better attract foreign direct investment (Moon, ). Logically, it might follow that autocratic leaders with longer time horizons more likely would invest in expanding infrastructure to promote ICT diffusion because these leaders see themselves as more secure in their position and less wary of the mobilizing powers of ICTs.…”