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Democratic Accountability, Regulation and Inward Investment Policy

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  • Michael T. Dorsch
  • Fergal McCann
  • Eoin F. McGuirk

Abstract

type="main" xml:id="ecpo12034-abs-0001"> We examine the effect of domestic political accountability on leaders' strategies for attracting foreign direct investment to less developed countries. We consider two policy areas: the tax burden imposed on firms and the regulatory environment in which they operate. We find that democratic governments are more likely to offer relatively lower tax rates to foreign investors, whereas autocratic governments are more likely to offer relatively lax regulation. This result is driven by the greater elasticity of the political survival function to environmental and labor regulations in more democratic countries. Analyses of firm-level survey data confirm our main theoretical conclusions.

Suggested Citation

  • Michael T. Dorsch & Fergal McCann & Eoin F. McGuirk, 2014. "Democratic Accountability, Regulation and Inward Investment Policy," Economics and Politics, Wiley Blackwell, vol. 26(2), pages 263-284, July.
    • Handle: RePEc:bla:ecopol:v:26:y:2014:i:2:p:263-284
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    File URL: http://hdl.handle.net/10.1111/ecpo.2014.26.issue-2
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    Cited by:

    1. Anindya Bhattacharya & Debapriya Sen, 2021. "Labor policy and multinational firms: The “race to the bottom” revisited," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1515-1537, August.
    2. Christos Kollias & Suzanna-Maria Paleologou, 2017. "The Globalization and Peace Nexus: Findings Using Two Composite Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(3), pages 871-885, April.
    3. Sargis Karavardanyan, 2022. "Short-Term Harm, Long-Term Prosperity? Democracy, Corruption and Foreign Direct Investments in Sino-African Economic Relations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 417-486, September.
    4. Christian Bjørnskov, 2018. "Do Liberalising Reforms Harm the Environment? Evidence from the Post†Communist Transition," Economic Affairs, Wiley Blackwell, vol. 38(1), pages 22-37, February.

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