Democratization and FDI Liberalization,1970-2000

Abstract

FDI’s central role in the world economy remains a substantial gap in political economy accounts of international economic integration. This paper presents a theory of FDI regulation that identifies reasons why barriers to foreign ownership declined from 1970 to 2000.It identifies mechanisms that generate demand for and against restrictions on foreign ownership, and how politicians’ incentives influence their propensity to supply these regulations. New data on the foreign ownership regulations allow for tests of these theoretical claims. Findings show the democracies impose fewer restrictions on foreign ownership. This conclusion is robust to broad range of controls and estimation techniques that control for possible effects of FDI inflows on democratization.