The Political Economy of FDI in Latin America 1986-2006: A Sector-Specific Approach

This study examines the political determinants of foreign direct investment (FDI) across 15 Latin American countries from 1986 to 2006. In contrast to existing scholarship, we focus on the causes of investment by economic sector-primary resources, manufacturing, and services. Additionally, a regional focus on Latin America helps to control for omitted variables by comparing relatively similar countries. We find substantial variation in the causes and characteristics of FDI across sector. Specifically, manufacturing investment is volatile and attracted to less democratic regimes. In contrast, investment in primary resources privileges greater democracy and property rights protection, while FDI in services is associated with public fiscal responsibility. These results yield important theoretical and practical implications for scholars and policymakers throughout the region