Does democracy moderate the obsolescing bargain mechanism? an empirical abalysis, 1983-2001

Developing country governments have seemingly become more receptive towards transnational corporation (TNCs). Nonetheless, political risks remain. The present article contends that authoritarianism and the host-TNC bargaining relationship still represent two potent sources of government intervention mrisk. In particular, the lack of democracy and executive constraints increases the risk of ex post intervention. I performs two empirical tests. In the first model, I usxe fouyr different measures of political freedom and three different specifications of the dependent variable to examine if TNCs prefer to invest in democracies. Results confirm that democracy positively impacts on foeign direct investment. To substantiate the claim that the presumed credibility-enhancing properties of democratic nations reduce intervention risk, I also test the effect of political freedom on property rights protection. Hee, too, the findings support the hypothesis. Evidently, democracy and international capital flows are highly compatible.