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This paper investigates whether multinational enterprises (MNEs) take into account both global and diplomatic political risks when investing abroad. Whereas global political risk is common to all foreign investors, diplomatic political risk is dyad‐specific as it is related to the overall diplomatic climate between the home and host countries. The main result of this study is that both global and diplomatic political risks matter for U.S. MNEs investing in developing countries. Their required return on investment rises when the political risk faced by all foreign investors worsens or when diplomatic tensions arise between the United States and their host countries, presumably because in both cases uncertainty about future returns increases.

The occurrence of some revolutionary episodes seems initially puzzling. For example, before the 'Arab Spring', macroeconomic conditions were improving, the political leaders had been in power for a long time, and the autocrats had shown an apparent interest in the welfare of their population by investing in human capital. We argue that such a paradox can be solved by considering that high education levels are incompatible with the features characterising strong neopatrimonial states. We develop this intuition in a simple theoretical model and we test our prediction in a sequential empirical study of regime changes and regime breakdowns in a large panel of countries. We indeed find that a regime change is more likely in countries combining high neopatrimonialism and high education levels. Moreover, when a regime change happens under these circumstances, a revolution is the most likely type of regime breakdown. These results help to understand the 'Arab Spring' but are not specific to the Arab world.

The occurrence of some revolutionary episodes seems initially puzzling. For example, before the 'Arab Spring', macroeconomic conditions were improving, the political leaders had been in power for a long time, and the autocrats had shown an apparent interest in the welfare of their population by investing in human capital. We argue that such a paradox can be solved by considering that high education levels are incompatible with the features characterising strong neopatrimonial states. We develop this intuition in a simple theoretical model and we test our prediction in a sequential empirical study of regime changes and regime breakdowns in a large panel of countries. We indeed find that a regime change is more likely in countries combining high neopatrimonialism and high education levels. Moreover, when a regime change happens under these circumstances, a revolution is the most likely type of regime breakdown. These results help to understand the 'Arab Spring' but are not specific to the Arab world.

We develop a theory of institutional transition from dictatorship to minority dominant-based regimes. We depart from the standard political transition framework à la Acemoglu-Robinson in four essential ways: (i) population is heterogeneous, there is a minority/majority split, heterogeneity being generic, simply reflecting subgroup size; (ii) there is no median voter in the post-dictatorship period, political and economic competition is favorable to the minority (fiscal particularism); (iii) (windfall) resources are introduced, and (iv) we distinguish between labor income and resources, and labor supply is endogenous. We first document empirically fiscal particularism, its connection with resource endowment, and the impact of both on revolutionary bursts. Second, we construct a full-fledged model incorporating the four characteristics outlined above. We show, among others, that polarization is a sufficient condition for revolutions, while resource rents are not: they do matter though when polarization is low. In agreement with our empirical facts, countries engaging in revolutions tend to be slightly less resource-rich than other countries. We also outline the interplay between resource rents, polarization and labor market conditions at the dawn of institutional change. Our theory is appropriate to understand the institutional dynamics in highly homogeneous resource-rich countries, which after post-independence autocratic regimes, turn to be dominated by minorities, Algeria being the paradigmatic case.

We develop a theory of institutional transition from dictatorship to minority dominant-based regimes. We depart from the standard political transition framework à la Acemoglu-Robinson in four essential ways: (i) population is heterogeneous, there is a minority/majority split, heterogeneity being generic, simply reflecting subgroup size; (ii) there is no median voter in the post-dictatorship period, political and economic competition is favorable to the minority (fiscal particularism); (iii) (windfall) resources are introduced, and (iv) we distinguish between labor income and resources, and labor supply is endogenous. We first document empirically fiscal particularism, its connection with resource endowment, and the impact of both on revolutionary bursts. Second, we construct a full-fledged model incorporating the four characteristics outlined above. We show, among others, that polarization is a sufficient condition for revolutions, while resource rents are not: they do matter though when polarization is low. In agreement with our empirical facts, countries engaging in revolutions tend to be slightly less resource-rich than other countries. We also outline the interplay between resource rents, polarization and labor market conditions at the dawn of institutional change. Our theory is appropriate to understand the institutional dynamics in highly homogeneous resource-rich countries, which after post-independence autocratic regimes, turn to be dominated by minorities, Algeria being the paradigmatic case.

AbstractWe develop a new robust‐to‐outliers dummy estimator that we subsequently apply to investigate the impact of various democratic attributes on foreign direct investment in recent years. We find that democracy has generally a positive impact on foreign direct investment, once outliers are controlled for, but that this relationship is very specific to each host country's characteristics.

Several proxies of political-economic development, such as the Worldwide Governance Indicators, come in the form of an estimate along with a standard error reflecting the uncertainty of this estimate. Existing empirical work discards the information provided by the standard errors. We argue that the appropriate practice should be to take into account this additional information through the use of multiple imputation. We investigate the importance of our proposed approach in several applications. We find that accounting for the uncertainty around the values of various measures of political-economic development tends to have a large influence on the magnitude and statistical significance of the estimated effects of these variables.

Foreign firms are likely to attempt to shape host government policies in their favour, as the profitability of MNE foreign affiliates largely depends on the business environment in which they operate. Based on data from the World Business Environment Survey, this paper investigates the political influence of foreign firms in 48 developing countries. It is found that foreign firms derive substantial fiscal and regulatory advantages from their political influence and from their ability to negotiate superior entry conditions.