Glen Biglaiser

Finding the "Democratic Advantage" in Sovereign Bond Ratings: The Importance of Strong Courts, Property Rights Protection, and the Rule of Law

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.

Sovereign Bond Ratings and the Democratic Advantage: Portfolio Investment in the Developing World

As developing countries expose portfolio investors to potential high risk, it is expected that investors will follow the advice of credit rating agencies (CRAs) before sending capital abroad. Controlling for political and economic explanations in the literature, the authors use panel data for 50 developing countries from 1987 to 2003 to determine if changes in CRA ratings affect portfolio flows. Using a two-stage Heckman model, they find that countries that are under newer political institutions and facing economic challenges are more likely to be selected by portfolio investors because they offer risk premia, but that CRA ratings and democracy have significant positive signaling effects on the countries that receive the largest private equity inflows. In fact, democracy and bond ratings are the most important for the poorest developing countries. The results suggest the significance of CRA ratings for equity investors and contribute a revision for the democratic advantage debate.

Do Electoral Rules Matter? Political Institutions and Foreign Direct Investment in Latin America

Despite the growing importance of domestic institutions in the political economy literature, few studies explore the effects of disaggregated measures of political institutions, specifically electoral rules and systems, on foreign direct investment (FDI). Building on institutional accounts, this articles tests the effects of electoral rules on FDI inflows for 16 Latin American countries from 1978 to 2000. Using panel data and controlling for common explanations in the FDI literature, the authors find that candidate-centered electoral systems increase political access for voters and industries supportive of FDI inflows. The results show the benefits of unpacking political institutions to explain FDI inflows, paving the way for many new research avenues.

Back on Track Support for Presidential Trade Authority in the House of Representatives

Challenging conventional wisdom, which suggests that constituency interests and membership ideology guide legislative voting on trade, we argue that the relative importance of these factors fluctuates depending on party control of the presidency. Such is the casewith the House of Representatives opposing fast-track trade negotiating authority in 1997 and 1998 and then supporting trade-promotion authority in 2001. The shifting political context represented by the change in partisan control of the presidency changed the salience of ideology and constituency factors among House Republicans, leading to major trade policy changes. Using logit analysis for position taking in the House on fast track, we explore the relative effects of a variety of cross pressures on trade policy preferences across time.

The Effects of Political Risk on Different Entry Modes of Foreign Direct Investment

Although numerous studies document the effect of political institutions on foreign direct investment (FDI), few works in the political economy literature have investigated the link between political institutions and the mode of entry chosen by investors, be it mergers and acquisitions, joint ventures, or greenfield investments. Using panel data for 111 developing countries covering 1980–2006, we find that countries with political institutions that uphold good governance tend to attract higher levels of mergers and acquisitions, as opposed to joint ventures and greenfield investments, because such institutions help to mitigate the special risks faced by merger and acquisition investors. Our findings provide a nuance for understanding the different effects of political institutions based on the particular mode of entry.

The effect of foreign direct investment on the use and success of US sanctions

Although the relationship between trade and the use and success of sanctions is frequently studied in international relations, researchers have generally failed to address the importance of foreign direct investment (FDI) on sanctions despite global capital markets dwarfing the exchange of goods and services. Using panel data for 171 countries from 1971 to 2000, we test the effect of FDI on the use and success of sanctions imposed by the USA. We find evidence that a high level of economic engagement in the form of US FDI as a percentage of the recipient county’s gross domestic product reduces the likelihood of the use of US sanctions. We also find that, when sanctions are imposed, declining US FDI generally has a positive and significant effect on sanctions success. However, if non-US firms offset lost US FDI, the probability of sanctions success decreases. The results show that investors may have an important influence on foreign policy outcomes.

What Makes a State Stable and Peaceful? Good Governance, Legitimacy and Legal-Rationality Matter Even More for Low Income Countries

This study explores state stability using various governance and development indicators. We find stability is associated with state capacity and public goods, the legal–rational state, legitimacy, good governance and corruption, income/capita and democracy and human rights. In particular, we show the importance of democracy, legitimacy, rule of law and secularity. Environmental degradation and debt dependency undermine stability. Revenue collection, corruption, rule of law, independent judiciary and exports can be important to stability even in the face of incomplete democracy and lower GDP per capita. These factors are relatively more important in low-income states.

The importance of legal systems for portfolio investment in the developing world

Building on recent works showing the role that legal institutions can play in attracting foreign investment to developing countries, and drawing on insights obtained from Powell and Rickard (International Interactions 36: 335–362, 2010), we demonstrate that developing countries with common law legal systems attract greater portfolio investment than countries that have civil law or Islamic legal systems because common law systems are more inclined to promote the rule of law and protect property rights and can be understood to provide more efficiency in the law, better contract enforcement, more judicial autonomy and more market-oriented regulations. We base our findings on an analysis of time-series panel data for 99 countries covering the period 1980–2007.

The effects of political and legal constraints on expropriation in natural resource and manufacturing sectors

Using panel data for up to 86 developing countries from 1960–2006, this paper investigates the effects of political and legal constraints on the tendency of host governments to expropriate in the natural resource and manufacturing sectors. Consistent with existing research, we find that host governments are more inclined to expropriate in the natural resource sector than they are in the manufacturing sector and that leftist governments are more apt to expropriate than rightist governments. However, we also find that political and legal constraints on host governments lessen the risk of expropriation, but do so with greater force as to the natural resource sector than for the manufacturing sector, and with larger effect as to leftist governments than rightist governments. The results suggest that leftist governments are especially inclined to expropriate in the resource sector unless constrained by political and legal factors from doing so and, because of lower initial capital requirements and increased mobility of assets, all governments, left and right, have less reason to expropriate in the manufacturing sector and therefore are more likely to resist expropriating even in the absence of political and legal constraints.