Private investment and democracy in Latin America

This paper argues that the deterioration of Latin American private investment in the 1980s may have been largely due to debt difficulties and not the concurrent wave of democratization. After reviewing why more political systems may actually be conducive to investment, we test an investment function for seven countries over 1973-86 that includes traditional economic factors, two debt measures, and several political variables, including measures of democracy, worker power, International Monetary Fund support, and risk. The results are quite congenial for our hypothesis: under several reasonable alternative specifications for the economic determinants, our democracy measure is positively signed and significant.