Examining the Different Types of Foreign Capital and their Political Effects
Abstract
This paper seeks to better understand the complex relationship between financial globalization and democratization. We do so by distinguishing among four types of foreign capital and discussing their possible implications for democratic development. An analysis of the aggregate financial and democratic trends for 92 developing countries from 1970 to 2003 demonstrates that foreign direct investments and portfolio investments are, on average, positively correlated with democratization whereas foreign aid and commercial loans are negatively related to it.