Foreign Direct Investment in Latin America: The Importance of Judicial Strength and Rule of Law†

An extensive literature has emerged recently that investigates the determinants of foreign direct investment (FDI) in developing regions of the world, including Latin America. Much of this work has focused on whether authoritarian or democratic rule is better for attracting FDI. Curiously, little attention has been devoted to unpacking regime type to see whether specific political institutional variables related to judicial strength and adherence to the rule of law are important FDI determinants. Based on panel data analysis and our own survey of US corporations, we find that judicial strength and rule of law elements are important determinants of FDI in Latin America.