Do Political Institutions Affect Foreign Direct Investment? A Survey of U.S. Corporations in Latin America

Abstract

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 officers— the 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.