176 International Organization countries that are democratizing also happen to be developing economies pursu- ing foreign capital.If democratic governance hurts a country's attractiveness to foreign investors,the developing country faces a trade-off between competing for limited FDI and democratization.If,on the other hand,deepening democratic gov- ernance enhances a country's ability to attract FDI,then democratization helps to deliver the economic benefits from foreign capital.The stakes for leaders in the LDCs are high given the potential consequences.Theoretically,the lack of an ad- equate explanation for the effect of democracy on FDI suggests an important gap in how scholars explain interactions between economic globalization and political democracy.In this article,we set out to fill this gap by focusing on the causality from democratic institutions to FDI inflows.More specifically,does increased de- mocracy lead to more FDI inflows to LDCs? Previous theoretical work,while providing a broad framework for our question, suggests conflicting answers.Olson argues that in well-established democracies, independent judiciaries and electoral challenges help to guarantee property rights, ensuring that investments are secure for the long haul.s Investors favor such re- gimes because their assets are shielded from predatory banditry by dictators.Fol- lowing this argument,one concludes that higher levels of democracy should be associated with more FDI inflows.O'Donnell presents a contrasting view,arguing that investors and autocrats often share a cozy relationship.6 Because of political leaders'interest in the economic benefits of FDI,the autocrats shield foreign cap- ital from popular pressure for higher wages,stronger labor protection,or less capital- friendly taxation.Olson and O'Donnell each suggest plausible yet contradictory answers to the democracy-FDI relationship.Olson tells us that property rights make stable democracies fertile territory for investment;O'Donnell illustrates how investor-state collusion favors foreign capital in highly autocratic countries. Other scholars offer similarly contrasting arguments.Because democracy re- ceives broad domestic support,avoids irregular political changes,and institution- alizes income redistribution,democratic developing countries have fewer property rights violations and more private investment.'In contrast,Haggard argues that authoritarian rule may be attractive to investors in countries with traditions of "strong pressure from labor or the left to their economic viability or basic prop- erty rights."Autocrats,in some contexts,may also protect property rights rather than practicing banditry,even though they can be quite effective at banditry.In addition,authoritarian regimes"give political elites autonomy from distributionist pressures,"allowing a broader range of economic policy options.An alliance of the state,local,and multinational capital is likely in autocratic countries where their leaders prefer repression to increased pluralism out of fear of diluted control.10 5.01s0n1993. 6.O'Donnell 1978 and 1988. 7.Feng 2001;Pastor and Hilt 1993;and Pastor and Sung 1995. 8.Haggard1990,258. 9.bid,262. 10.Evans1979,49.176 International Organization countries that are democratizing also happen to be developing economies pursu￾ing foreign capital. If democratic governance hurts a country's attractiveness to foreign investors, the developing country faces a trade-off between competing for limited FDI and democratization. If, on the other hand, deepening democratic gov￾ernance enhances a country's ability to attract FDI, then democratization helps to deliver the economic benefits from foreign capital. The stakes for leaders in the LDCs are high given the potential consequences. Theoretically, the lack of an ad￾equate explanation for the effect of democracy on FDI suggests an important gap in how scholars explain interactions between economic globalization and political democracy. In this article, we set out to fill this gap by focusing on the causality from democratic institutions to FDI inflows. More specifically, does increased de￾mocracy lead to more FDI inflows to LDCs? Previous theoretical work, while providing a broad framework for our question, suggests conflicting answers. Olson argues that in well-established democracies, independent judiciaries and electoral challenges help to guarantee property rights, ensuring that investments are secure for the long haul.5 Investors favor such re￾gimes because their assets are shielded from predatory banditry by dictators. Fol￾lowing this argument, one concludes that higher levels of democracy should be associated with more FDI inflows. O'Donnell presents a contrasting view, arguing that investors and autocrats often share a cozy relati~nship.~ Because of political leaders' interest in the economic benefits of FDI, the autocrats shield foreign cap￾ital from popular pressure for higher wages, stronger labor protection, or less capital￾friendly taxation. Olson and O'Donnell each suggest plausible yet contradictory answers to the democracy-FDI relationship. Olson tells us that property rights make stable democracies fertile territory for investment; O'Donnell illustrates how investor-state collusion favors foreign capital in highly autocratic countries. Other scholars offer similarly contrasting arguments. Because democracy re￾ceives broad domestic support, avoids irregular political changes, and institution￾alizes income redistribution, democratic developing countries have fewer property rights violations and more private investment.' In contrast, Haggard argues that authoritarian rule may be attractive to investors in countries with traditions of "strong pressure from labor or the left to their economic viability or basic prop￾erty rights." ' Autocrats, in some contexts, may also protect property rights rather than practicing banditry, even though they can be quite effective at banditry. In addition, authoritarian regimes "give political elites autonomy from distributionist pressures," allowing a broader range of economic policy option^.^ An alliance of the state, local, and multinational capital is likely in autocratic countries where their leaders prefer repression to increased pluralism out of fear of diluted control.1° 5. Olson 1993. 6. O'Donnell 1978 and 1988. 7. Feng 2001: Pastor and H~lt 1993: and Pastor and Sung 1995. 8. Haggard 1990, 258. 9. Ib~d., 262. 10. Evans 1979, 49