Hostname: page-component-8448b6f56d-qsmjn Total loading time: 0 Render date: 2024-04-23T08:35:16.715Z Has data issue: false hasContentIssue false
  • English
  • Français

Unbundling the Relationship between Authoritarian Legislatures and Political Risk

Published online by Cambridge University Press:  10 April 2013

Nathan M. Jensen ,
Edmund Malesky  and
Stephen Weymouth
Get access Rights & Permissions [Opens in a new window]

Abstract

A strong statistical association between legislative opposition in authoritarian regimes and investment has been interpreted as evidence that authoritarian legislatures constrain executive decisions and reduce the threat of expropriation. Although the empirical relationship is robust, scholars have not provided systematic evidence that authoritarian parliaments are able to restrain the actions of state leaders, reverse activities they disagree with, or remove authoritarian leaders who violate the implied power-sharing arrangement. This article shows that authoritarian legislatures, by providing a forum for horse trading between private actors, are better at generating corporate governance legislation that protects investors from corporate insiders than they are at preventing expropriation by governments. The statistical analysis reveals that the strength of authoritarian legislatures is associated with corporate governance rules and not expropriation risk.

Type
Articles
Information
British Journal of Political Science , Volume 44 , Issue 3 , July 2014 , pp. 655 - 684
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Department of Political Science, Washington University; Department of Political Science, Duke University (email: ejm5@duke.edu), and McDonough School of Business, Georgetown University. The authors thank Joe Wright and Jennifer Gandhi for sharing their data, and also the participants at numerous workshops and conferences including the Political Economy Lunch Group at Georgetown University and the Texas A&M Program on International Conflict and Cooperation for helpful comments. Funding for the political risk insurance data collection was provided by the Weidenbaum Center on the Government Economy and Public Policy at Washington University in St. Louis. An online appendix and data replication set are available at http://dx.doi.org/doi:10.1017/S0007123412000774.

References

Abidin, Nor Azizah Zainal Ahmad, Halimah Nasibah. 2007. Corporate Governance in Malaysia: The Effect of Corporate Reforms and State Business Relations in Malaysia. Asian Academy of Management Journal 12 (1):23–34.Google Scholar
Acemoglu, Daron. 2009. Introduction to Modern Economic Growth. Princeton, N.J.: Princeton University Press.Google Scholar
Acemoglu, Daron Johnson, Simon. 2005. Unbundling Institutions. Journal of Political Economy 113 (5):949–995.CrossRefGoogle Scholar
Ardagna, Silvia, Lusardi, Annamaria. 2008. Explaining International Differences in Entrepreneurship: The Roles of Individual Characteristics and Regulatory Constraints. NBER Working Paper Series, No. 14012.Google Scholar
Aziz, Azni Che Abd. 2004. Corporate Governance Watch: Malaysia. Asia-Counsel. July/August 2006: 19–20.Google Scholar
Bebchuk, Lucian Neeman, Zvika. 2010. Investor Protection and Interest Group Politics. Review of Financial Studies 23 (3):1089–1119.Google Scholar
Blaydes, Lisa. 2011. Who Votes in Authoritarian Elections and Why? Determinants of Voter Turnout in Contemporary Egypt. Paper presented at the Annual Meeting of the American Political Science Association, Philadelphia.Google Scholar
Boix, Carles. 2003. Democracy and Redistribution. Cambridge: Cambridge University Press.Google Scholar
Boix, Carles, Svolik, Milan. 2007. Non-Tyrannical Autocracies. Unpublished paper, http://www.sscnet.ucla.edu/polisci/cpworkshop/papers/Boix.pdf.Google Scholar
Boix, Carles, Svolik, Milan. 2010. The Foundations of Limited Authoritarian Government: Institutions and Power-Sharing in Dictatorships. Unpublished paper, Princeton University and University of Illinois at Urbana-Champaign.CrossRefGoogle Scholar
Brownlee, Jason. 2008. Bound to Rule: Party Institutions and Regime Trajectories in Malaysia and the Philippines. Journal of East Asian Studies 8:89–118.Google Scholar
Caprio, Lorenzo, Faccio, Mara McConnell, John J.. 2012. Sheltering Corporate Assets from Political Extraction. Journal of Law, Economics, and Organization. http://jleo.oxfordjournals.org/content/early/2011/10/10/jleo.ewr018.full.pdf+html.Google Scholar
Castro, Rui, Clementi, Guan Luca MacDonald, Glenn. 2004. Investor Protection, Optimal Incentives, and Economic Growth. Quarterly Journal of Economics 119:1131–1175.Google Scholar
Coase, Ronald. 1937. The Nature of the Firm. Economica 4 (16):386–405.Google Scholar
De Long, James Bradford Shleifer, Andrei. 1993. Princes and Merchants: European City Growth before the Industrial Revolution. Journal of Law and Economics 36:671–702.Google Scholar
De Soto, Hernando. 1990. The Other Path: The Invisible Revolution in the Third World. London: Tauris.Google Scholar
De Soto, Hernando. 2000. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books.Google Scholar
Djankov, Simeon, La Porta, Rafael, López-de-Silanes, Florencio Shleifer, Andrei. 2000. The Law and Economics of Self-Dealing. Journal of Financial Economics 88:430–465.Google Scholar
Djankov, Simeon, McLiesh, Caralee Ramalho, Rita. 2006. Regulation and Growth. Economics Letters 92 (3):395–401.CrossRefGoogle Scholar
Djankov, Simeon, La Porta, Rafael, Lopez-de-Silanes, Florencio Shleifer, Andrei. 2008. The Law and Economics of Self-Dealing. Journal of Financial Economics 88 (3):430–465.Google Scholar
Di Tella, Rafael, Galiani, Sebastian Schargrodsky, Ernesto. 2007. The Formation of Beliefs: Evidence from the Allocation of Land Titles to Squatters. Quarterly Journal of Economics 122 (1):209–241.Google Scholar
Doing Business. 2012. Measuring Business Regulations – Database. World Bank and International Finance Corporations. Available from www.doingbusiness.org.Google Scholar
Field, Erica. 2007. Entitled to Work: Urban Tenure Security and Labor Supply in Peru. Quarterly Journal of Economics 122 (4):1561–1602.Google Scholar
Fleck, Robert K. 2000. When Should Market-Supporting Institutions Be Established? Journal of Law, Economics, and Organization 16 (1):129–154.Google Scholar
Friedrich, Carl J. Brzezinski, Zbigniew. 1961. Totalitarian Dictatorship and Autocracy. New York: Praeger.Google Scholar
Frye, Timothy. 2004. Credible Commitment and Property Rights: Evidence from Russia. American Political Science Review 98 (3):453–466.Google Scholar
Galiani, Sebastian Schargrodsky, Ernesto. 2010. Property Rights for the Poor: Effects of Land Titling. Journal of Public Economics 94 (9–10):700–729.Google Scholar
Gandhi, Jennifer Przeworski, Adam. 2006. Cooperation, Cooptation, and Rebellion under Dictatorships. Economics and Politics 18 (1):1–26.Google Scholar
Gandhi, Jennifer Przeworski, Adam. 2007. Authoritarian Institutions and the Survival of Autocrats. Comparative Political Studies 40 (1):1279–1301.Google Scholar
Gandhi, Jennifer. 2008. Dictatorial Institutions and Their Impact on Economic Growth. European Journal of Sociology 49:3–30.Google Scholar
Gandhi, Jennifer. 2009. Political Institutions under Dictatorship. New York: Cambridge University Press.Google Scholar
Gandhi, Jennifer Lust-Okar, Ellen. 2009. Elections under Authoritarianism. American Review of Political Science 12:403–422.Google Scholar
Geddes, Barbara. 1999. What Do We Know about Democratization after Twenty Years? Annual Review of Political Science 2:115–144.Google Scholar
Geddes, Barbara. 2006. Why Parties and Elections in Authoritarian Regimes? Revised version of paper presented at the Annual Meeting of the American Political Science Association, Washington, D.C., 2005.Google Scholar
Gehlbach, Scott, Keefer, Philip. 2010. Private Investment and the Institutionalization of Collective Action in Autocracies: Ruling Parties and Legislatures. Working paper. University of Wisconsin-Madison and the World Bank Development Research Group.Google Scholar
Ginsburg, Tom, Elkins, Zachary Melton, James. 2010. The Endurance of National Constitutions. New York: Oxford University Press.Google Scholar
Ginsburg, Tom, Elkins, Zachary, Melton, James. 2011. The Content of Authoritarian Constitutions. Paper for Conference on Constitutions in Authoritarian Regimes, University of Chicago Law School.Google Scholar
Gourevitch, Peter A. Shinn, James. 2005. Political Power and Corporate Control. Princeton, N.J.: Princeton University Press.Google Scholar
Grossman, Sandford Hart, Oliver. 1986. The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy 94:691–719.Google Scholar
Guneratne, Priyanthi. 2011. Recent Changes in Corporate Governance. IFLR. Available from http://www.iflr1000.com/LegislationGuide/130/Recent-changes-in-corporate-governance.html.Google Scholar
Guriev, Sergei, Kolotilin, Anton Sonin, Konstantin. 2009. Determinants of Nationalization in the Oil Sector: A Theory and Evidence from Panel Data. Journal of Law Economics and Organization 27 (2):301–323.Google Scholar
Gwartney, James Lawson, Robert. 2006. Economic Freedom of the World: 2006 Annual Report. Vancouver: The Fraser Institute.Google Scholar
Hadenius, Axel Teorell, Jan. 2007. Pathways from Authoritarianism. Journal of Democracy 18 (1):143–157.Google Scholar
Haidar, Jamal Ibrahim. 2009. Investor Protections and Economic Growth. Economic Letters 103 (1):1–4.Google Scholar
Hart, Oliver. 1995. Firms, Contracts, and Financial Structure. Oxford: Oxford University Press.Google Scholar
Hart, Oliver Moore, John. 1990. Property Rights and the Nature of the Firm. Journal of Political Economy 98:1119–1158.Google Scholar
Henisz, Witold J. 2000. The Institutional Environment for Multinational Investment. Journal of Law, Economics, and Organization 16 (2):334–364.Google Scholar
Henisz, Witold J. 2002. Politics and International Investment. Cheltenham, Glos.: Edward Elgar.Google Scholar
Henisz, Witold J. Zelner, Bennet A.. 2010. The Hidden Risks in Emerging Markets. Harvard Business Review. 1 April: 1–8.Google Scholar
IFC. 2004. Report on the Observance of Standards and Codes. Sri Lanka: Accounting and Auditing. International Finance Corporation. Available from: http://www.worldbank.org/ifa/rosc_aa_sri.pdf.Google Scholar
Jensen, Nathan M. 2003. Democratic Governance and Multinational Corporations: Political Regimes and Foreign Direct Investment. International Organization 57 (3):587–616.Google Scholar
Jensen, Nathan M. 2008. Political Risk, Democratic Institutions, and Foreign Direct Investment. Journal of Politics 70:1040–1052.Google Scholar
Jensen, Nathan M. Young, Daniel J.. 2008. A Violent Future? Political Risk Insurance Markets and Violence Forecasts. Journal of Conflict Resolution 52 (4):527–547.Google Scholar
Jones, Eric. 1981. The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia. New York: Cambridge University Press.Google Scholar
Kaufmann, Daniel, Kraay, Aart, Mastruzzi, Massimo. 2009. Governance Matters VIII: Aggregate and Individual Governance Indicators for 1996–2008. World Bank Policy Research Paper No. 4978. Available from: http://ssrn.com/abstract=1424591.Google Scholar
Kerner, Andrew Kucik, Jeffrey. 2010. The International and Domestic Determinants of Insider Trading Laws. International Studies Quarterly 54:657–682.Google Scholar
Kleibergen, Frank Paap, Richard. 2006. Generalized Reduced Rank Tests Using the Singular Value Decomposition. Journal of Econometrics 133 (1):97–126.Google Scholar
La Porta, Rafael, López-de-Silanes, Florencio, Shleifer, Andrei Vishny, Robert. 1997. Legal Determinants of External Finance. Journal of Finance 52 (3):1131–1150.Google Scholar
La Porta, Rafael, López-de-Silanes, Florencio, Shleifer, Andrei Vishny, Robert. 1998. Law and Finance. Journal of Political Economy 106 (6):1113–1155.Google Scholar
La Porta, Rafael, López-de-Silanes, Florencio, Shleifer, Andrei Vishny, Robert. 1999. The Quality of Government. Journal of Law, Economics and Organization 15 (1):222–279.Google Scholar
La Porta, Rafael, López-de-Silanes, Florencio, Shleifer, Andrei Vishny, Robert. 2000. Investor Protection and Corporate Governance. Journal of Financial Economics 58:3–27.Google Scholar
Laeven, Luc Woodruff, Christopher. 2007. The Quality of the Legal System, Firm Ownership, and Firm Size. Review of Economics and Statistics 89 (4):601–614.Google Scholar
Li, Quan. 2009. Democracy, Autocracy, and Expropriation of Foreign Direct Investment. Comparative Political Studies 42 (8):1098–1127.Google Scholar
Lust-Okar, Ellen. 2006. Elections under Authoritarianism: Preliminary Lessons from Jordan. Democratization 13 (3):456–471.Google Scholar
Magaloni, Beatriz. 2006. Voting for Autocracy. New York: Cambridge University Press.Google Scholar
Magaloni, Beatriz Kricheli, Ruth. 2010. Political Order and One Party Rule. Annual Review of Political Science 13:123–143.Google Scholar
Malesky, Edmund Schuler, Paul. 2010. Nodding or Needling: Analyzing Delegate Responsiveness in an Authoritarian Parliament. American Political Science Review 104 (3):1–21.Google Scholar
Malesky, Edmund Taussig, Markus. 2009. Out of the Gray: The Impact of Provincial Institutions on Business Formalization in Vietnam. Journal of East Asian Studies 9:249–290.Google Scholar
Markus, Stanislav. 2012. Secure Property as a Bottom-Up Process: Firms, Stakeholders, and Predators in Weak States. World Politics 64 (2):242–277.Google Scholar
Mitton, Todd. 2002. A Cross-Firm Analysis of the Impact of Corporate Governance on the East Asian Financial Crisis. Journal of Financial Economics 64 (2):215–241.Google Scholar
Murphy, Colum. 2006. Abdullah's Imperfect Plan to Reinvent Malaysia. Far Eastern Economic Review 169 (6):19–24.Google Scholar
Nam, Sang-Woo Nam, Il Chong. 2004. Corporate Governance in Asia: Recent Evidence from Indonesia, Republic of Korea, Malaysia and Thailand. Tokyo: Asian Development Bank Institute.Google Scholar
North, Douglass. 1991. Institutions. Journal of Economic Perspectives 5 (1):97–112.Google Scholar
North, Douglass C. Weingast, Barry R.. 1989. Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. Journal of Economic History 49 (4):803–832.Google Scholar
Olson, Mancur. 2000. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. Oxford: Oxford University Press.Google Scholar
Ow-Yong, Keah, Guan, Cheah Kooi. 2000. Corporate Governance Codes: A Comparison between Malaysia and the UK. Conference Papers 8 (2):125–32.Google Scholar
Pagano, Marco Volpin, Paolo. 2005. The Political Economy of Corporate Governance. American Economic Review 95:1005–1030.Google Scholar
Pepinsky, Thomas B. 2009. Economic Crisis and the Breakdown of Authoritarian Regimes: Indonesia and Malaysia in Comparative Perspective. New York: Cambridge University Press.Google Scholar
Pepinsky, Thomas B. 2011. The Institutional Turn in Comparative Authoritarianism. Unpublished paper, Department of Government, Cornell University.Google Scholar
Perotti, Enrico C. von Thadden, Ernst-Ludwig. 2006. The Political Economy of Corporate Control and Labor Rents. Journal of Political Economy 114:145–174.Google Scholar
Perotti, Enrico C., Volpin, Paolo. 2007. Investor Protection and Entry. Tinbergen Institute Discussion Papers 07-006/2, Tinbergen Institute.Google Scholar
Pinto, Pablo, Weymouth, Stephen Gourevitch, Peter. 2010. The Politics of Stock Market Development. Review of International Political Economy 17 (2):378–409.Google Scholar
Porter, Michael Schwab, Klaus. 2008. The Global Competitiveness Report 2008–2009. Geneva: World Economic Forum.Google Scholar
Rajan, Raghuram Zingales, Luigi. 2003. The Great Reversals: The Politics of Financial Development in the 20th Century. Journal of Financial Economics 69:5–50.Google Scholar
Roe, Mark J. 2011. Capital Markets and Financial Politics: Preferences and Institutions. Oxford Handbook on Capitalism. New York: Oxford University Press.Google Scholar
Reuter. 2011. Sri Lanka's Asset Acquisition Act and Constitutional Court. 8 November. Available from http://www.reuters.com/article/2011/11/08/srilanka-acquisition-idUSL4E7M81XX20111108.Google Scholar
Reuter. 2011. Sri Lanka Cbank: Takeover Bill Not Expropriation. 17 November.Google Scholar
Sala-i-Martin, Xavier, Bilbao-Osorio, Beñat, Blanke, Jennifer, Hanouz, Margareta Drzeniek Geiger, Thierry. 2011. The Global Competitiveness Index 2011–2012: Setting the Foundations for Strong Productivity. Pp. 3–51 in The Global Competitiveness Report 2011–2012, edited by Klaus Schwab. Geneva: World Economic Forum. Available from http://www3.weforum.org/docs/WEF_GCR_Report_2011–12.pdf.Google Scholar
Securities Commission. 2007. Malaysian Code on Corporate Governance. Available from www.sc.com.my/eng/html/cg/cg2007.pdf.Google Scholar
Shleifer, Andrei Daniel, Wolfenzon. 2002. Investor Protection and Equity Markets. Journal of Financial Economics 66 (1):3–27.Google Scholar
Slater, Dan. 2003. Iron Cage in an Iron Fist: Authoritarian Institutions and the Personalization of Power in Malaysia. Comparative Politics 36 (1):81–101.Google Scholar
Slater, Dan. 2009. Altering Authoritarianism: Institutional Complexity and Autocratic Agency in Indonesia. Pp. 132–167 in Explaining Institutional Change: Ambiguity, Agency, and Power, edited by James Mahoney and Kathleen Thelen. Cambridge: Cambridge University Press.Google Scholar
Slater, Dan. 2010. Ordering Power: Contentious Politics and Authoritarian Leviathans in Southeast Asia. New York: Cambridge University Press.Google Scholar
Stasavage, David. 2002. Credible Commitment in Early Modern Europe: North and Weingast Revisited. Journal of Law, Economics and Organization 18 (1):155–186.Google Scholar
Staton, Jeffrey K. Moore, Will H.. 2011. Judicial Power in Domestic and International Politics. International Organization 65:553–587.Google Scholar
Stock, James H. Yogo, Motohiro. 2005. Testing for Weak Instruments in Linear IV Regression. Pp. 80–108 in Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, edited by D. W. K. Andrews and J. H. Stock. Cambridge: Cambridge University Press.Google Scholar
Stulz, René. 1999. Globalization, Corporate Finance, and the Cost of Capital. Journal of Applied Corporate Finance 12 (3):8–25.Google Scholar
Tiberghien, Yves. 2007. Entrepreneurial States: Reforming Corporate Governance in France, Japan, and Korea. Ithaca, NY: Cornell University Press.Google Scholar
Wah, Loh Kok Teik, Khoo Boo. 2002. Democracy in Malaysia: Discourses and Practices. Richmond, Surrey: Curzon.Google Scholar
Weingast, Barry R. 1995. The Economic Role of Political Institution: Market-Preserving Federalism and Economic Development. Journal of Law, Economics, and Organization 11 (1):1–31.Google Scholar
Weymouth, Stephen. 2011. Political Institutions and Property Rights: Veto Players and Foreign Exchange Commitments in 127 Countries. Comparative Political Studies 44 (2):211–240.Google Scholar
Weymouth, Stephen Broz, J. Lawrence. 2013. Government Partisanship and Property Rights: Cross-Country Firm-Level Evidence. Economics and Politics (forthcoming).Google Scholar
Williamson, Oliver. 1975. Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal Organization. New York: Free Press.Google Scholar
Williamson, Oliver. 1985. The Economic Institutions of Capitalism: Firms, Markets, and Relational Contracting. New York: Free Press.Google Scholar
World Trade Organization. 2010. Trade Policy Review: Malaysia. WT/TPR/S/225.Google Scholar
World Trade Organization. 2010b. Trade Policy Review: Sri Lanka. WT/TPR/S/237.Google Scholar
Wright, Joseph. 2008. Do Authoritarian Institutions Constrain? How Legislatures Affect Economic Growth and Investment. American Journal of Political Science 52 (2):322–343.Google Scholar
Supplementary material: File

Download undefined(File)
File 67.1 KB
Supplementary material: PDF

Jensen et al. supplementary material

Supplementary table

Download Jensen et al. supplementary material(PDF)
PDF 78.7 KB