Some investors like countries led by a sole dictator

We do not usually think of a country that is led by a sole dictator as a good place to invest. In fact, most investors see dictatorships as risky places for investments. Penn State researchers found that some investors like to channel their money into nations where a sole dictator is in power.

Boliang Zhu and Joseph Wright wrote about their study and findings in the International Studies Quarterly (citation below).

Zhu is assistant professor of political science and Asian studies at Penn State’s Department of Political Science. Wright is also an associate professor in the Department of Political Science.

Sole dictator – foreign investments

The authors found that nations ruled by a sole dictator attracted more foreign investments than other nations. They were looking specifically at fixed-asset investment industries.

Fixed asset investment or FAI is a measure of capital spending. Investment in land, equipment, and machinery, for example, are fixed asset investments.

According to, the Financial Time’s glossary of Terms:

FAI can be a good indicator for how much investment is occurring in a country or region, but it is not a direct contributor to GDP.”

Fixed assets are those that help businesses produce things and earn money. You cannot convert a fixed asset into cash easily. PP&E (property, plant, and equipment), for example, are fixed assets.

In the oil and mining industries, fixed assets represent a major proportion of total assets.

Sole dictator and investor
Countries that have a sole dictator as leader attract a lot of fixed asset investments.

Prof. Zhu said:

“Conventional wisdom is that if the company has a lot of fixed assets, assets that aren’t mobile, it would want to avoid risky countries, especially in personalist regimes where the power is controlled by one person, who could very easily seize your assets.”

“But recently, in the past decade or two, those seizures have become rare and those acts can be constrained by international investment agreements.”

“Our argument is that, in light of that, it’s much easier now for companies to have a market monopoly in those regimes because you’re only dealing with a single person.”

Sole dictator – striking deals

Investors can strike a deal with a sole dictator. They can, for example, gain market monopolies to make up for the risk, explained Prof. Wright.

Prof. Wright added:

“Places that are conventionally high risk because they don’t have legislatures that check the leader’s behavior and legal rules don’t really apply to restrain leaders from doing ugly things, like confiscating the assets of international investors.”

“Those countries also tend to be the same places where you’re most likely able to get the benefits of a monopoly deal by striking a deal with the leader, or his close political allies, which sometimes include the dictator’s family members.”

Deals with dictators, however, typically include illegal forms of payments. In other words, foreign investors have to pay bribes and offer expensive gifts. These items are very hard to track and can siphon off money from the public good.

Additionally, the sole dictator can use the injection of money to prop up the dictatorship.

The authors of sole dictator and investors article
Professors Wright and Zhu both work in the Department of Political Science at Penn State (Pennsylvania State University).
The sole dictator can help the investor

Prof. Wright said:

“What the dictator will do is give the contract to a firm at a below-market price because of a personal connection and that money will be added to the company’s books and flow through the national treasury to look like a legitimate deal, but then, on the side, they pay the dictator in another bank account.”

“And the dictators can use that money for whatever they want.”

Supporting transparency

One way to address the issue of illegal payments in a sole dictatorship is to support the international initiatives that push for transparency.

The Extractive Industries Transparency Initiative, for example, seeks to establish an international standard for promoting accountable and open management. The Initiative focuses on companies that extract natural resources.

Western democracies could also manage the financial systems better. Specifically, the financial systems in which the process operates.

Prof. Zhu said:

“It has to be a global movement because it requires global coordination.”

Sole dictator and investor negotiate in secrecy

Getting data for their study was not easy because investors and dictators usually make deals in secret.

Professors Zhu and Wright used data from sixty-one nations in a UN Conference on Trade and Development dataset. They compared data on foreign direct investments in several economic sectors of countries that were led by a sole dictator.

According to a Penn State press release regarding this study:

“Investments in personalist regimes tend to be higher in primary sectors, which includes natural-resource extraction and agricultural industries, compared with other types of dictatorships, such as single-party ruled regimes.”

In an Abstract that precedes the main article in the journal, the authors concluded:

“We find that personalist dictatorships receive significantly more foreign investment in the primary sector, and fixed-asset intensive industries in general, than other regimes.”

“This study highlights the importance of accounting for heterogeneity among investors and political regimes to understand the politics of FDI.”


Monopoly Rents and Foreign Direct Investment in Fixed Assets,’ Joseph Wright and Boliang Zhu. International Studies Quarterly, Volume 62, Issue 2, Pages 341–356. DOI: Published: 04 July 2018.