Foreign Direct Investment, Commitment Institutions, and Time Horizon: How Some Autocrats Do Better than Others* Chungshik Moon Australian National University Why do some autocratic governments do better than others in attracting foreign direct investment (FDI)? The received wisdom holds that democracies enjoy advantages over autocracies when it comes to attracting FDI. But there exist auto- cratic countries that attract substantial amounts of FDI. For example, during the last two decades, about half of the top 20 non-OECD host countries are nondemocratic. Focusing on the role of commitment institutions by which host coun- tries can commit their protection of foreign assets, I argue that autocrats with long time horizons can provide stronger institutions to protect property rights. This allows them to attract more FDI. Using an error correction model (EDM) cov- ering autocratic countries from 1970 to 2008, I find evidence that strongly supports my argument. These findings suggest that what matters to foreign investors is not regime type per se but specific institutional features of the host country. Inso- far as host countries provide sound institutions to protect foreign assets, they would be able to attract more foreign investment. The growing integration of the global economy over the last decade has increased interest in foreign direct invest- ment (FDI) among scholars and policymakers. FDI has become particularly important to developing countries since it provides abundant foreign capital, high technolo- gies, advanced managing skills, and new jobs. Thus, politi- cal science puts considerable effort into studying the political circumstances that favor foreign investment. Empirical work generally holds that democratic countries enjoy an advantage in attracting FDI over autocratic countries because the former prove better able to make credible commitments to foreign investors via domestic institutions (Feng 2001; Ahlquist 2006; Jensen 2006; Choi and Samy 2008). 1 However, some autocratic countries attract much larger amounts of FDI than others. Figure 1 presents the gen- eral pattern of FDI inflows among developing (that is, non-OECD) countries for last two decades. Some auto- cratic countries perform well in attracting FDI. Roughly half of the top twenty recipients are autocrats; the pattern is consistent more than two decades. 2 This generates a critical puzzle. If the credibility of the institution is the key to encouraging FDI inflows, how do we explain the performance of these autocratic countries? Can autocratic countries credibly commit to protect foreign assets? If so, what explains the credible commitment mechanism in autocratic countries? In this paper, I seek to identity conditions that explain variation in autocrats’ ability to attract FDI. I focus on autocrats’ time horizons and the domestic commitment institutions they can develop. While multinational enter- prises (MNEs) make FDI for an economic purpose (that is, seeking profits), the host government’s policies shape the investment environment. I argue that autocrats with long time horizons can provide stronger institutions that better protect property rights. This allows them to attract more FDI inflows than other autocratic countries. In turn, autocrats with long time horizons are better able to develop institutions as they expect long-term benefits from foreign investments. Using error correction models (ECMs) covering all autocratic countries from 1970 to 2008, I find evidence supporting my argument. My research makes a significant contribution to exist- ing FDI studies by suggesting a new research area. Earlier studies tend to focus on the effect of regime type and how cross-regime differences affect the likelihood of attracting FDI (Jensen 2003; Li and Resnick 2003). How- ever, previous work pays inadequate attention to the con- siderable variation in FDI levels across autocracies. My research also adds to the growing body of literature which looks at the diversity of policy outcomes among autocracies (Gandhi 2008; Weeks 2008; Wright 2008a,b). It offers theoretical and empirical conformation that a specific type of autocratic country proves better able to attract FDI inflows. 3 The next section outlines existing arguments about the determinants of FDI inflows. It focuses on the role of com- mitment institutions to address the time inconsistency Chungshik Moon is lecturer, School of Politics and International Rela- tions, Australian National University, Haydon-Allen Building (# 24), Canberra, ACT 0200, Australia. *The author thanks the editors of International Studies Quarterly, two anony- mous reviewers, Dale Smith, Sean Ehrlich, Mark Souva, Chris Reenock, Quin- tin Beazer, Andrea Beger, Marius Radeon, Edward Hearn, and participants of 2013 conference of the Midwest Political Science Association in Chicago for their help and comments. Any remaining errors are my own. Replication data and Tables S1 and S2 of additional tables are available at author’s Web site. 1 See Li and Resnick (2003) as a notable exception. 2 Figure 1 plots the number for each regime type among the top 20 FDI host countries from 1990 to 2008. The distinction between democracy and autocracy is based on Przeworski, Alvarez, Cheibub, and Limongi (2000). 3 Only Gehlbach and Keefer (2012) test the relationship between ruling party institutionalization and foreign investment. They argue that an autocrat can make a credible commitment by institutionalizing the ruling party that allows party elites to cooperate against the leader if she reneges on mutual agreements. While the main concern of their study is domestic investment, they also find that party institutionalization has no impact on foreign investment. Moon C. (2015) Foreign Direct Investment, Commitment Institutions, and Time Horizon: How Some Autocrats Do Better than Others. International Studies Quarterly, doi: 10.1111/isqu.12182 © 2015 International Studies Association International Studies Quarterly (2015) 1–13