The importance of sovereign bond ratings has grown recently as assessments by credit rating agencies~CRAs! influence the cost of capital+ Understanding how CRAs determine country ratings is difficult based on the secretive nature of these agencies+ Controlling for the common explanations in the literature, we use panel data and interviews to investigate the role of the "democratic advantage" and other determinants on bond ratings set by Moody's Investor Services, Standard and Poor's, and Fitch Ratings for fifty developing countries from 1987 to 2003+ We find that regime type and most other political factors have little effect on bond raters+ Instead, trade, inflation, growth, and bond default strongly affect sovereign ratings+ The message for policymakers in developing countries is that factors that support bond repayment are most useful for enhancing CRA ratings+The single most important visitor to a developing country was the representative from a western aid agency in the 1960s; the commercial banker eager to recycle OPEC surpluses in the 1970s; the IMF official in the 1980s, the "lost decade+" Since then, it has been the sovereign analyst from one of the leading rating agencies, Moody's Investor Services, Standard and Poor's or Fitch+The authors' names are listed alphabetically to indicate equal contribution+ For comments on previous versions of this article, we are grateful to

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In contrast to the 19th and early 20th centuries, the effects of security factors on foreign direct investment (FDI) have received limited interest in the post-Cold War era. Using panel data for 126 developing countries between 1966 and 2002, and controlling for macroeconomic conditions, economic reforms, and level of democratization, this essay tests the effects of ''follow the flag'' variables on U.S. FDI. Security factors can affect FDI in two stages: the initial decision over whether to invest and the second stage, which involves the amount invested. Our results indicate a selection effect and that follow the flag factors are influential both in the selection phase and in the main equation for U.S. investors. However, such results are not found for global investors, suggesting that positive links between economic and security goals only hold for U.S. firms.

Much scholarship in the political economy literature has investigated the influence of the democratic advantage on sovereign bond ratings by credit rating agencies (CRAs). Missing from earlier work, however, is inquiry into the effects on bond ratings of factors that lower political risk, such as adherence to the rule of law, the presence of a strong and independent judicial system, and protection of property rights. Using panel data for up to thirty-six developing countries from 1996 to 2006, we find that rule of law, strong and independent courts, and protection of property rights have significant positive effects on bond ratings. Policymakers wanting to obtain higher bond ratings and increased revenue from bond sales would do well to heed the message contained in these findings.

An extensive literature has emerged recently that investigates the determinants of foreign direct investment (FDI) in developing regions of the world, including Latin America. Much of this work has focused on whether authoritarian or democratic rule is better for attracting FDI. Curiously, little attention has been devoted to unpacking regime type to see whether specific political institutional variables related to judicial strength and adherence to the rule of law are important FDI determinants. Based on panel data analysis and our own survey of US corporations, we find that judicial strength and rule of law elements are important determinants of FDI in Latin America.For years, scholars have remarked on the importance of quality courts and rule of law for attracting foreign direct investment (FDI)