Unbundling the Relationship between Authoritarian Legislatures and Political Risk

A growing literature demonstrates a strong statistical association between the presence of legislative opposition in authoritarian regimes and investment. This finding has been interpreted as evidence that authoritarian legislatures constrain executive decisions and therefore reduce the threat of expropriation. Although the empirical relationship is robust, the micro-logic of the relationship between authoritarian legislatures and property rights is both theoretically unsatisfying and empirically untested. 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. In this article, we provide an alternative explanation for the robust correlation. We argue that authoritarian legislatures, by providing a forum for horse trading between multiple private actors, are far better at generating corporate governance legislation that protects investors from the avarice of corporate insiders than they are at preventing expropriation by governments. Our statistical analysis reveals that the strength of authoritarian legislatures is associated with corporate governance rules and not expropriation risk.

Duke Scholars

Author Edmund Malesky Political Science