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)

The political economy literature investigates the determinants of foreign direct investment (FDI) based largely on aggregate data, ignoring the actual decision makers. The authors conduct a survey of U.S. chief executive officersthe actual decision makers-of corporations that have investments in Latin America to understand FDI inflows. The authors find that investment risk related to property-rights protection, adherence to rule of law, and an effective court system weighed most heavily in U.S. firm preferences. The results suggest that rather than stress democracy itself as a determining factor, researchers might better focus on the institutions found within democracies. Keywords foreign direct investment, property rights, rule of law, effective courts, investment securityThe past two decades have seen a revival of both democracy and foreign direct investment (FDI) in the developing world. The similar time frame led many political economy scholars to argue that political reform and foreign investment were no coincidence-that democratization promoted increased FDI in the developing world (Busse

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An increasing number of development scholars and policymakers are recognizing the importance of Latin American judicial reforms in shaping the ultimate outcome of the region's “dual transition.” We can hardly begin to assess the conditions in which judicial systems are likely to improve, however, unless we have a means to measure judicial performance systematically across countries. This article offers just such a comprehensive cross‐national measure of judicial performance for Latin America. Drawing from a survey of Latin American legal scholars and practitioners from 17 countries in the region, it seeks to establish a more valid, and therefore more useful, assessment of the performance of Latin American judiciaries than existing measures, in order to advance efforts to understand the causes and consequences of effective judicial reforms in the region.