Premium
Democratic Accountability, Regulation and Inward Investment Policy
Author(s) -
Dorsch Michael T.,
McCann Fergal,
McGuirk Eoin F.
Publication year - 2014
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/ecpo.12034
Subject(s) - autocracy , accountability , democracy , politics , foreign direct investment , economics , investment (military) , business , international economics , economic policy , public economics , market economy , political science , macroeconomics , law
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.