598 International Organization MENT LEVEL,TRADE,and MARKET SIZE.36 Trade is measured as exports plus im- ports divided by GDP.Level of development is measured as the log of GDP per capita,and market size is the log of GDP.Both of these variables,and trade as a percentage of GDP,are expected to have a positive effect on FDI inflows. To test and examine the effects of political regime type on FDI inflows,I use a standard measure of democracy.The variable used in these regressions,DEMoC- RACY,is a measure of political regime averages for 1990 from the Polity III data set by Jaggers and Gurr.37 This variable provides an ordinal ranking of political regimes on a scale of 10 to -10 (democracy to authoritarian regimes),which I have rescaled to a 0-20 scale for easier interpretation.A 20 constitutes the highest democracy score.38 I have also included control variables for the level of NATURAL RESOURCE DE- PENDENCE and the rate of ECONOMIC GROWTH.Natural resources are exogenous economic factors that may help a country attract higher levels of FDI that are independent of political institutions and government policies.39 Economic growth rates have an effect on the domestic market,such that countries with expanding domestic markets should attract higher levels of FDI. The failure to control for natural resources in previous studies could account for the perceived negative relationship between democracy and FDI inflows.A number of scholars have highlighted the positive correlation between natural resource-dependent economies and authoritarian regimes.0 If natural resources are correlated with authoritarian regimes,and natural resources are likewise corre- lated with higher FDI,any empirical study may find a spurious causation between authoritarian regimes and higher FDI inflows.Only by properly controlling for the level of natural resources can one examine the true effects of democracy on FDI.41 Another important control variable is the level of GOVERNMENT CONSUMPTION, because the level of government consumption is possibly correlated with the type of political regime.This variable is of interest beyond the status of control vari- able.While economists have found negative effects of government intervention 36.All control variables are from the World Bank's World Development Indicators 1999 unless otherwise noted. 37.Jaggers and Gurr 1998.Given the democratizations in the 1990s,the 1990 measure of democ- racy is a more representative measure of political institutions during the period of FDI investment (the 1990s).As an alternative specification,I also tested all models with the average level of democracy in the 1980s.These results were slightly weaker. 38.The correlation between the Polity III democracy measure and the Alvarez et al.1996 democ- racy score is 0.92. 39.Natural resources are operationalized as primary exports as a percentage of gross domestic prod- uct(GDP)from Sachs and Warner 1995. 40.For some examples of the effects of natural resources on political institutions,see Wantchekon 2000;and Ross 2000.For an application to Africa,see Wantchekon and Jensen 2000. 41.The panel analysis in the next section will more directly test the effects of democracy on indi- vidual countries by utilizing fixed-effects regressions.ment level, trade, and market size+ 36 Trade is measured as exports plus im￾ports divided by GDP+ Level of development is measured as the log of GDP per capita, and market size is the log of GDP+ Both of these variables, and trade as a percentage of GDP, are expected to have a positive effect on FDI inflows+ To test and examine the effects of political regime type on FDI inflows, I use a standard measure of democracy+ The variable used in these regressions, democ￾racy, is a measure of political regime averages for 1990 from the Polity III data set by Jaggers and Gurr+ 37 This variable provides an ordinal ranking of political regimes on a scale of 10 to 210 ~democracy to authoritarian regimes!, which I have rescaled to a 0–20 scale for easier interpretation+ A 20 constitutes the highest democracy score+ 38 I have also included control variables for the level of natural resource de￾pendence and the rate of economic growth+ Natural resources are exogenous economic factors that may help a country attract higher levels of FDI that are independent of political institutions and government policies+ 39 Economic growth rates have an effect on the domestic market, such that countries with expanding domestic markets should attract higher levels of FDI+ The failure to control for natural resources in previous studies could account for the perceived negative relationship between democracy and FDI inflows+ A number of scholars have highlighted the positive correlation between natural resource-dependent economies and authoritarian regimes+ 40 If natural resources are correlated with authoritarian regimes, and natural resources are likewise corre￾lated with higher FDI, any empirical study may find a spurious causation between authoritarian regimes and higher FDI inflows+ Only by properly controlling for the level of natural resources can one examine the true effects of democracy on FDI+ 41 Another important control variable is the level of government consumption, because the level of government consumption is possibly correlated with the type of political regime+ This variable is of interest beyond the status of control vari￾able+ While economists have found negative effects of government intervention 36+ All control variables are from the World Bank’s World Development Indicators 1999 unless otherwise noted+ 37+ Jaggers and Gurr 1998+ Given the democratizations in the 1990s, the 1990 measure of democ￾racy is a more representative measure of political institutions during the period of FDI investment ~the 1990s!+ As an alternative specification, I also tested all models with the average level of democracy in the 1980s+ These results were slightly weaker+ 38+ The correlation between the Polity III democracy measure and the Alvarez et al+ 1996 democ￾racy score is 0+92+ 39+ Natural resources are operationalized as primary exports as a percentage of gross domestic prod￾uct ~GDP! from Sachs and Warner 1995+ 40+ For some examples of the effects of natural resources on political institutions, see Wantchekon 2000; and Ross 2000+ For an application to Africa, see Wantchekon and Jensen 2000+ 41+ The panel analysis in the next section will more directly test the effects of democracy on indi￾vidual countries by utilizing fixed-effects regressions+ 598 International Organization