Transmission of democracy to a better business environment: roles of regulation and institutions

Abstract

This study analyses the role of democracy in fostering international business. To investigate this issue empirically, we have retrieved data from 77 economies for the period of 2000 to 2022 and analysed it using the generalised method of moments (GMM). Using foreign direct investment inflows and globalisation as the proxies of international business, we find following observations. First, democracy has a significant impact on international business over time. Second, regulatory efficiency significantly moderates the favourable spill over effects of democracy on international business. However, the findings indicate that corruption, being a moderator, has detrimental impacts on democracy, negating international business. The research explored several controlling factors, and prioritised governance quality and labour freedom as the major attributes for enhancing international businesses. We found a similar trend for both high- and low-income economies. Thus, this provides stronger support for the roles of democracy and institutions in impacting the business environment. © 2026 Elsevier Inc. All rights are reserved, including those for text and data mining, AI training, and similar technologies.