The Affinity of Foreign Investors for Authoritarian Regimes

Military coups in Argentina, Brazil, and Chile in the 1960s and 1970s cast doubt on the liberals' belief that democracy and economic development are mutually reenforcing. Indeed, Guillermo O'Donnell and other radicals argued that democracy was inconsistent with the requirements for develop ment within the strictures of international capitalism. Strong and weak ver sions of the radical thesis linking authoritarian regimes to the interests of multinational corporations are tested by analyzing the flow and profitability of U.S. foreign direct investment. Do multinationals benefit materially from autocratic regimes? Pooled cross-sectional and time-series regression analyses of 48 countries, 1950-85, indicate that U.S. multinational corporations have fared best in the developed democracies; but rates of return in the periphery have been greater under authoritarian regimes. Investment flows have not been significantly related to regime type.