Intelligent Dictators Are More Attractive to Foreign Investors
(Bloomberg) -- Cash-strapped dictators might want to consider going back to school and opening a few economics textbooks, according to a new study that traces investment flows into non-democratic countries.
Investors put more money in authoritarian regimes where the leader has a solid education, research by the Bank of Finland Institute for Economies in Transition concluded. If that education is in economics, and the ruler has prior experience in business, investment is even more forthcoming, according to the study which examined foreign direct investment data on 100 dictatorial countries from 1973 to 2008.
“Incompetence deters investment to a greater extent than expropriation risk,” the authors Abel François, Sophie Panel and Laurent Weill wrote. “We find no relationship between dictators’ age and prior political experience and FDI inflows.”
Individual characteristics play a greater role than institutions in attracting FDI in countries where policy choices depend on the discretion of a single person, they wrote. The ruler’s personal background can help potential investors anticipate future policy choices, the study found.
‘Reign of Discretion’
“Dictatorship is, to some extent, the reign of discretion,” the authors wrote. “Even if there are variations in discretionary power among dictatorships, the scope of potential public policy decisions is broader than in democracies,” where institutions and elections help to safeguard against the risks of extremist rulers, they said.
The report also found that history offers investors good reason not to trust less economically aware dictators.
Former Burmese leader Ne Win, for example, “ruined Myanmar” in his 26-year rule to 1988, including through a monetary reform that he ordered “partly because his astrologer advised him to release new denominations whose numerals added up to nine,” the authors said.
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