Internal vs. External Shocks in Weakening Democracies: Evidence on Migration and Foreign Investment

This paper investigates the consequences of regime change for both migration and foreign direct investment (FDI) by employing quasi-natural experiments that exploit external and internal shocks to democratic institutions. It compares evidence from Europe, which was afflicted by the “Syrian Shock”—an external institutional stress testing administrative and fiscal capacity—and Israel, which experienced the “Corruption Shock”—an internal credibility crisis that eroded judicial independence and policy predictability. These two shocks provide a natural experiment to examine how weakening democratic institutions influence both capital mobility and people mobility.