Are some dictators more attractive to foreign investors?

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Title: Are some dictators more attractive to foreign investors?
ISBN: 978-952-323-278-5
Author: François, Abel ; Panel, Sophie ; Weill, Laurent
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
ISSN: 1456-5889
Series year: 2019
Series number: 12/2019
Year of publication: 2019
Publication date: 8.7.2019
Pages: 40
Subject (yso): suorat investoinnit; diktatuuri; diktaattorit; epävarmuus; poliittinen epävakaisuus; riskit; politiikka; johtajuus; valtionpäämiehet; koulutustausta
Keywords: Bofit-kokoelma; suorat sijoitukset
JEL: F21; F23
Other keywords: foreign direct investment; dictatorships; leader characteristics; political risk
Abstract: Since political uncertainty is greater in dictatorships than in democracies, we test the hypothesis that foreign investors scrutinize public information on dictators to assess this risk. In particular, we as-sume they use five suitable dictators’ characteristics: age, political experience, education level, ed-ucation in economics, and prior experience in business. We perform fixed effects estimations on an unbalanced panel of 100 dictatorial countries from 1973 to 2008 to explain foreign direct investment (FDI) inflows. We find that educated dictators are more attractive to foreign investors. We obtain strong evidence that greater educational attainment of the leader is associated with higher FDI. We also find evidence that the leader having received education in economics and prior experience in business is associated with greater FDI. By contrast, the leader’s age, and political experience have no relationship with FDI. Our results are robust to several tests and checks, including a comparison with democracies.

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