Examination of Domestic Investment

This chapter further extends the theoretical framework established in the prior chapters of this book to develop a set of hypotheses relating to the political economy of domestic investment in both democratic and nondemocratic states. In a fashion similar to foreign investment, the number of economic elites has a nonlinear association with domestic investment across regime types. In nondemocratic states, the number of competing economic elites is negatively associated with domestic investment, a product of greater uncertainty over prevailing policy. In democratic states, the number of competing economic elites is positively associated with domestic investment, a product of stronger incentives toward strengthening property protections. However, this chapter also illustrates that the character of domestic investment between democratic and nondemocratic states as a result of economic elite density is meaningfully different. Specifically, a greater number of competing economic elites in democratic states is also associated with new business formation, whereas this association is not found in nondemocratic states with fewer economic elites. This chapter uses World Bank data to provide empirical evidence for the claims in the period since 1980.