Ryan G. Baird

The Primacy of Governance Infrastructure: Democracy, FDI, and Trade

Summary
Most scholars believe that democracies guarantee the rule of law and provide superior institutions, which influence firms' decisions on where to do business. However, I argue that these superior institutions are prior to the institutions of democracy, comprise the concept of governance infrastructure, and are therefore the key institutional determinants of trade and FDI flows. I find that the quality of a state's governance infrastructure 1) sends a signal to investors concerning a state's credible commitment to a pro-business environment which determines its FDI inflows; 2) 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; 3) accounts for the effect that democracy has on FDI and trade flows; 4) must reach a certain threshold for a state to be a high quality democracy and is therefore an necessary condition for high quality democracy.

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

Table of Contents

1. Introduction

2. Governance Infrastructure and High Quality Democracy: A Theoretically Motivated Concept Construction and Necessary Condition Analysis

3. An Inviting Signal: Imperfect Information, Institutional Environments, and Increased FDI Inflows into Developing Countries

4. Does Democracy Matter? Is Increased Interstate Trade Between Democracies Conditional on Their Governance Infrastructure?

5. Governance Infrastructure, Intermediary Public Goods, and FDI: A New Causal Mechanism Connecting Domestic Institutions and FDI in Developing Countries

6. Conclusion

Aug, 2009