Ryan G. Baird

The Primacy of Governance Infrastructure: Democracy and FDI

Summary
Most scholars believe that democracies guarantee the rule of law and provide superior institutions, which influence developing states' development trajectories, as well as firms' decisions on where to do business. However, I argue that these superior institutions are prior to the institutions of democracy and constitute the concept of governance infrastructure, and are therefore the key institutional determinants of state's economic outcomes. I find that the institutions that comprise a state's governance infrastructure (GI) are separate conceptually from the institutions that comprise democracy, and that the quality of developing states' GI 1) must reach a certain threshold before democracy positively affects economic development; 2) sends a signal to investors concerning potential transaction costs that investors may incur, ultimately determining the amount of FDI developing states' receive, while being the only domestic institutions that affect investors decision making; 3) and also determines the quality and provision of a state's intermediary public goods, which are an additional causal mechanism to signaling in determining a state's FDI inflows.

Committee
Gary Goertz (Chair), William J. Dixon, Tom Volgy, Lane Kenworthy.

Table of Contents

1. "The Primacy of Governance Infrastructure"

2. "Conceptualizing Governance Infrastructure"

3. "The Primacy of Governance Infrastructure versus Democracy in Economic Development"

4. "Interacting Signals: Imperfect Information, Institutional Environments, and FDI in Developing Countries"

5. "Are all Public Goods Created Equally? Governance Infrastructure, Intermediary Public Goods, and FDI in Developing Countries"

6. "Conclusions and Future Research"

Aug 17, 2010