On the one hand, democratic institutions usually have a larger number of checks and balances than autocracies which makes rapid and dramatic policy reversals difficult or impossible, and which, in turn, provides investors with relatively stable expectations (Hiensz 2000). Another stream of literature argues that democratic leaders face large “audience costs” which translate into negative electoral consequences if they renege on publicly made commitments (Jensen 2003). Regardless of whether democratic institutions provide checks and balances or audience costs, the implication is that democracies should attract more international investment than autocracies. While the democratic institutions literature focuses on the.
