Democratic Institutions and Investment Inflows 181 and by whom they are governed.Democratic institutions under a representative de- mocracy or"polyarchy"22 typically include free and fair elections of the executive and legislative offices,the right of citizens to vote and compete for public office, and institutional guarantees for the freedom of association and expression such as an independent judiciary and the absence of censorship.23 These institutions sup- ply"regular constitutional opportunities for changing the governing officials,and a social mechanism that permits the largest possible part of the population to in- fluence major contenders for political office."24 Under democratic institutions,pol- iticians have incentives to develop public policies reflecting the popular sentiment.25 Representative democracy also allows various interests to be represented in the leg- islature,thereby constraining executive power.In addition,the stronger a country's democratic characteristics,the more likely its social interests are to get organized and participate in political competition.Even in fledgling democracies,the state is subject to a broad spectrum of political interests as it attempts to broker compliance with democratic rules,offering relevant political actors welfare improvements to induce their consent.26 Hence,democratic political processes are characterized by the influence of diverse opinions over electoral and public policymaking outcomes. In contrast,autocratic characteristics derive from "limited pluralism"as op- posed to "almost unlimited pluralism"under a representative democracy.27 They may include government co-optation of civil society leadership or legal limitation of pluralism,a single leader or small ruling clique,and weak political mobiliza- tion.Regardless of the methods rulers use to enhance their legitimacy,autocratic politics is biased in favor of narrow elite control over public policy. Countries exhibit heterogeneity in how and to what extent they conform to dem- ocratic or autocratic properties.28 Despite such cross-sectional and temporal het- erogeneity,regime characteristics within the democratic or autocratic category tend to correlate with and reinforce each other.For example,free elections are sustain- able only if leaders are constrained through some mechanism by the citizenry; free election can effectively reflect the will of the people only if citizens partici- pate actively in political competition.To a great extent,the relative strength of democratic and autocratic characteristics defines the nature of political institu- tions.The manner in which these competing democratic and autocratic character- istics are manifested in democratic institutions has implications for foreign direct 22.Though not the focus of our analysis,other variants of democracy include democracy based on a one-party model or direct or participatory democracy,where citizens are directly involved in policy- making.Held 1993,15. 23.Dahl1971and1998. 24.Lipset1960,27. 25.Politicians converge to the median voter's preference in a majoritarian system and to the ideal point of the median voter of popularly elected legislators in a proportional representation system.Hu- ber and Powell 1994. 26.Przeworski 1991,32 27.Linz2000. 28.The development of democracy is not a linear,monotonic process,but is punctuated by rever- sals and sudden changes.Casper 1995.Democratic Institutions and Investment Inflows 181 and by whom they are governed. Democratic institutions under a representative de￾mocracy or "polyarchy" 22 typically include free and fair elections of the executive and legislative offices, the right of citizens to vote and compete for public office, and institutional guarantees for the freedom of association and expression such as an independent judiciary and the absence of censorship.23 These institutions sup￾ply "regular constitutional opportunities for changing the governing officials, and a social mechanism that permits the largest possible part of the population to in￾fluence major contenders for political office." 2%nder democratic institutions, pol￾iticians have incentives to develop public policies reflecting the popular sentiment.25 Representative democracy also allows various interests to be represented in the leg￾islature, thereby constraining executive power. In addition, the stronger a country's democratic characteristics, the more likely its social interests are to get organized and participate in political competition. Even in fledgling democracies, the state is subject to a broad spectrum of political interests as it attempts to broker compliance with democratic rules, offering relevant political actors welfare improvements to induce their consent.26 Hence, democratic political processes are characterized by the influence of diverse opinions over electoral and public policymaking outcomes. In contrast, autocratic characteristics derive from "limited pluralism" as op￾posed to "almost unlimited pluralism" under a representative democracy.27 They may include government co-optation of civil society leadership or legal limitation of pluralism, a single leader or small ruling clique, and weak political mobiliza￾tion. Regardless of the methods rulers use to enhance their legitimacy, autocratic politics is biased in favor of narrow elite control over public policy. Countries exhibit heterogeneity in how and to what extent they conform to dem￾ocratic or autocratic proper tie^.^^ Despite such cross-sectional and temporal het￾erogeneity, regime characteristics within-the democratic or autocratic category tend to correlate with and reinforce each other. For example, free elections are sustain￾able only if leaders are constrained through some mechanism by the citizenry; free election can effectively reflect the will of the people only if citizens partici￾pate actively in political competition. To a great extent, the relative strength of democratic and autocratic characteristics defines the nature of political institu￾tions. The manner in which these competing democratic and autocratic character￾istics are manifested in democratic institutions has implications for foreign direct 22. Though not the focus of our analysis, other variants of democracy include democracy based on a one-party model or direct or participatory democracy, where citizens are directly involved in policy￾making. Held 1993, 15. 23. Dahl 1971 and 1998. 24. Lipset 1960, 27. 25. Politicians converge to the median voter's preference in a majoritarian system and to the ideal point of the median voter of popularly elected legislators in a proportional representation system. Hu￾ber and Powell 1994. 26. Przeworski 1991, 32. 27. Linz 2000. 28. The development of democracy is not a linear, monotonic process, but is punctuated by rever￾sals and sudden changes. Casper 1995