SUMMARY Some claim that when level of property rights protection is controlled, democracy lowers foreign direct investment (FDI) to developing countries (Li and Resnick 2003). We critically examine the theoretical claims of the pessimistic arguments and show that FDI responds to preferences of countries and that democracies have a clear preference for FDI given that the scarce factor – capital – will find it harder under democracy to seek rents by raising barriers to entry. On the other hand, labor (the abundant factor in developing countries) should profit from lower barriers to capital importation. We demonstrate conclusively that the most prominent pessimistic result on democracy in the literature is simply an artefact of sample size and testing procedure. We establish robust evidence suggesting that developing country democracies actually receive higher inflows of FDI, net of a number of control variables. Consistent with our view that host nations' attitudes are shaped by factor endowments, which in turn determine rent‐seeking, we demonstrate that governments controlled by ‘leftist’ political parties also receive more FDI than ‘centrist’ or ‘rightist’ governments among democracies. Why this should be true is not obvious from a theory based on property rights risk alone. An extended sample of LDCs and a better operationalization show that property rights and democracy positively affect FDI. Our results suggest that globalization advances the fortunes of democracies in the developing world.

No abstract

Empirical studies on the causes of civil war robustly show that poor countries are more likely to suffer civil war than rich ones. However, the interpretations of this finding differ. The literature proposes three different causal mechanisms: (1) poverty leads to grievances; (2) income proxies the opportunity-cost of rebelling; and (3) income proxies state capacity. Using factor analysis, logistic modeling and multiple imputation, we test which of the three possible explanations can best explain the link between poverty and conflict. We find per capita income to belong to a wealth/poverty dimension, and to have little in common with "pure" measures of grievance and state capacity. Thus our findings support the opportunity-cost argument. The wealth dimension is also shown to be the most important underlying cause of civil war.

Whether or not a city or a country should bid to host the Olympics or one of the big international football tournaments is often the source of heated debates. One question that is always raised is whether hosting such an event yields positive economic benefits. Using data from the period 1970-2009 we investigate whether there is a link between hosting a major sport event and the amount of foreign direct investment (FDI) a country receives. We employ time-series cross-section data for countries that have hosted either the Summer Olympics, the Winter Olympics, the FIFA World Cup or the UEFA European Championship in that period. While our overall results, on balance, offer support to the 'pessimistic' side of the debate about the economic effects of hosting mega events, our findings also indicate that some FDI benefits might still accrue to the host. Results are not unambiguous, however. More detailed analysis suggests that staging the Olympics has virtually no effect on FDI inflows, whereas hosting a major, nationwide football tournament might have a small positive impact on foreign investment, particularly in the years leading up to the event. These latter results seem to be driven by smaller nations.

No abstract