Effective Democracy, Economic Growth and Attractiveness to Foreign Investment

Democratization should make locations more favourable for MNEs internationalizing. Yet the association of democracy with economic growth and foreign investment remains inconclusive. Contrary to and in response to literature, we show that dichotomous and rules-based democracy measures have a U-shaped relation with GDP and FDI. We thus, create a novel index of effective democracy that is continuous and uses rules weighted by implementation. We...