Beyond Democracy: Political Regime Similarity and International Investment - Replication code/dataset

Replication code & dataset for the research note: Beyond Democracy: Political Regime Similarity and International Investment

Abstract
This research note examines whether political regime similarity shapes international investment patterns, extending beyond traditional binary regime type effects. While existing literature focuses on democracy versus autocracy distinctions, I argue that regime similarity facilitates bilateral capital flows through reduced transaction costs, institutional familiarity, and enhanced trust networks. Using PPML regressions and the four-category V-Dem regime classification, I analyze bilateral FDI and FPI positions across 176 countries between 2001 and 2017. The findings reveal three key insights. First, both democratic and autocratic country pairs exhibit substantially higher bilateral investment positions than mixed regime pairs, with autocratic dyads showing particularly pronounced effects. Second, these patterns are strongest when countries are located at the same extreme ends of the political spectrum (i.e. when both are liberal democracies or closed autocracies). Third, electoral democracy-electoral autocracy dyads represent an important exception, showing similar investment patterns to same-regime pairs despite being formally a mixed regime dyad. These findings challenge conventional wisdom about a democratic advantage in attracting investment, revealing that institutional similarity matters more than formal regime labels. With every second country now classified as autocratic, these findings suggest potential reinforcement of economic fragmentation along regime lines.