Joseph L. Staats

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

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.

Politics and Foreign Direct Investment

For decades, free trade was advocated as the vehicle for peace, prosperity, and democracy in an increasingly globalized market. More recently, the proliferation of foreign direct investment has raised questions about its impact upon local economies and politics. Here, seven scholars bring together their wide-ranging expertise to investigate the factors that determine the attractiveness of a locale to investors and the extent of their political power. Multinational corporations prefer to invest where legal and political institutions support the rule of law, protections for property rights, and democratic processes. Corporate influence on local institutions, in turn, depends upon the relative power of other players and the types of policies at issue.

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.

Habermas and Democratic Theory: The Threat to Democracy of Unchecked Corporate Power

In this article I explore the distance traveled by Jürgen Habermas from the pessimism expressed about the prospects for democracy in contemporary society in his early work, The Structural Transformation of the Public Sphere: An Inquiry into a Category of Bourgeois Society, to the optimistic resuscitation of democracy in a most recent work, Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy. I also discuss what I consider to be an inadequate treatment in the later work of the threat to democracy posed by the influence of the modern mass media allied with unchecked corporate power.

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.

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.