Jean Lacroix published an article entitled “Democratic transitions can attract foreign direct investment: Effect, trajectories, and the role of political risk“, co-authored with Pierre-Guillaume Méon and Khalid Sekkat (Université Libre de Bruxelles) in the Journal of Comparative Economics, 49(2), June 2021: 340-357.
Using a difference-in-differences method on a panel of 115 developing countries from 1970 to 2014, we find that democratic transitions do not affect foreign direct investment (FDI) inflows, on average. However, consolidated democratic transitions, i.e. transitions that do not go into reverse for at least five years, increase FDI inflows, with the bulk of the improvement appearing 10 years after the transition. Furthermore, when controlling for political risk, the effect of consolidated democratic transitions appears immediately after they have occurred, suggesting that higher political risk in the early years of the new regime offsets their positive intrinsic effect on FDI.