If developing countries want to be prosperous and attract international investment, they should hold free and fair elections, argues Mike Touchton, an assistant professor of political science at Boise State University. That’s the takeaway from my analysis of data on elections and net investment flows in 157 countries between 1990 and 2013, which I presented in a recent paper in International Interactions, he writes for The Washington Post’s Monkey Cage blog:
Political science has examined various theories to explain why international investors move money to countries with competitive elections. David S. Brown et al. and Witold J. Henisz hold that governments reduce corruption, improve governance, and attract capital when a strong opposition can hold powerful presidents accountable. ….Meanwhile, Brandon Julio argues that electing right-leaning governments tends to attract investment because investors look forward to their pro-business policies.
While the research supporting these explanations is strong, there’s yet another reason, Touchton adds:
Fair elections are critical not only because they hold a government accountable for its actions, but also because they signal to investors that this nation’s government respects democracy and the rule of law. Investors want reassurance that governments will respect their property and not seize or tax it at high rates, as was done by illiberal rulers like Venezuelan leaders Hugo Chávez and Nicolás Maduro, or Argentina’s Cristina Kirchner, or Zimbabwe’s Robert Mugabe…..
Free and fair elections bring a country increased revenue from both portfolio investment (such as stocks, bonds, and mutual funds) in the short term and Foreign Direct Investment (FDI, which includes building factories, training workers, through subsidiaries or joint ventures) in the long term, he adds:
This revenue could then be devoted to improving popular public services, such as health care and education, pleasing voters. Governments that hold free and fair elections may thus lose some short-term power, but gain prosperity, and potentially ongoing popularity.
