Democratic Governance and Multinational Corporations:Political Regimes and Inflows of Foreign Direct Investment Nathan M.Jensen Foreign direct investment(FDI)is a key element of the global economy.FDI is an engine of employment,technological progress,productivity improvements, and ultimately economic growth.FDI provides both physical capital and employ- ment possibilities that may not be available in the host market.More importantly, FDI is a mechanism of technology transfer between countries,particularly to the less-developed nations.Because of these significant benefits,attracting FDI has become one of the integral parts of economic development strategies in many countries. Although few scholars dispute the aggregate economic benefits of FDI,critics argue that the benefits of multinational production come with substantial costs for governments and their citizens.The need to attract FDI pressures governments to provide a climate more hospitable to foreign corporations-potentially altering pat- terns of domestic economic policy,and possibly even challenging the de facto sovereignty of the nation-state and the capacity for democratic governance.De- mocracy is often seen as an inefficient institutional structure in the global economy. This article empirically assesses these predictions about the political precondi- tions for attracting FDI using both cross-sectional and panel regression analysis for 114 countries.The cross-sectional regressions estimate the effects of eco- nomic conditions,policy decisions,and democratic political institutions in the 1980s on the level of FDI inflows in the 1990s.In the panel regressions,I explore how Special thanks to Geoffrey Garrett for his extensive comments on this project and a number of other related projects on the determinants of foreign direct investment.I would also like to thank Nancy Brune,Jose Cheibub,Lilach Gilady,Witold Henisz,Charles Martin,Fiona McGillivray,Bruce Rus- sett,Andy Sobel,Jason Sorens,Thomas Konig,Leonard Wantchekon,James Vreeland,the editors of 10,and three anonymous reviewers for helpful comments and suggestions.Thanks to Nancy Brune for making her capital account liberalization data available. 1.Jessup 1999 argues that authoritarian regimes in developing countries attract more international investment.Oneal 1994 finds that authoritarian regimes provide investors with higher returns in devel- oping countries,although overall investment fows are not related to regime type. International Organization 57,Summer 2003,pp.587-616 2003 by The IO Foundation. D0:10.1017/S0020818303573040Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment Nathan M+ Jensen Foreign direct investment ~FDI! is a key element of the global economy+ FDI is an engine of employment, technological progress, productivity improvements, and ultimately economic growth+ FDI provides both physical capital and employ￾ment possibilities that may not be available in the host market+ More importantly, FDI is a mechanism of technology transfer between countries, particularly to the less-developed nations+ Because of these significant benefits, attracting FDI has become one of the integral parts of economic development strategies in many countries+ Although few scholars dispute the aggregate economic benefits of FDI, critics argue that the benefits of multinational production come with substantial costs for governments and their citizens+ The need to attract FDI pressures governments to provide a climate more hospitable to foreign corporations—potentially altering pat￾terns of domestic economic policy, and possibly even challenging the de facto sovereignty of the nation-state and the capacity for democratic governance+ 1 De￾mocracy is often seen as an inefficient institutional structure in the global economy+ This article empirically assesses these predictions about the political precondi￾tions for attracting FDI using both cross-sectional and panel regression analysis for 114 countries+ The cross-sectional regressions estimate the effects of eco￾nomic conditions, policy decisions, and democratic political institutions in the 1980s on the level of FDI inflows in the 1990s+ In the panel regressions, I explore how Special thanks to Geoffrey Garrett for his extensive comments on this project and a number of other related projects on the determinants of foreign direct investment+ I would also like to thank Nancy Brune, Jose Cheibub, Lilach Gilady, Witold Henisz, Charles Martin, Fiona McGillivray, Bruce Rus￾sett, Andy Sobel, Jason Sorens, Thomas König, Leonard Wantchekon, James Vreeland, the editors of IO, and three anonymous reviewers for helpful comments and suggestions+ Thanks to Nancy Brune for making her capital account liberalization data available+ 1+ Jessup 1999 argues that authoritarian regimes in developing countries attract more international investment+ Oneal 1994 finds that authoritarian regimes provide investors with higher returns in devel￾oping countries, although overall investment flows are not related to regime type+ International Organization 57, Summer 2003, pp+ 587–616 © 2003 by The IO Foundation+ DOI: 10+10170S0020818303573040