Foreign Direct Investment and Civil Rights: Testing Decreasing Returns to Civil Rights

In this paper, I examine the effectiveness of improvements in political and civil rights for attracting foreign direct investment flows (FDI) into democracies. I contend that advances in the quality of democracy – specifically those concerning civil rights – present positive but decreasing marginal returns in attracting FDI inflows. I empirically prove this proposition by using panel data regressions within the Latin American and Eastern European contexts from periods following their democratization (1991-2003).