American investors locating in developing countries attempt to minimize uncertainty by selecting hosts with the weakest capacity for engaging in post-contractual opportunistic behavior such as expropriation. Analysis shows that international investors prefer countries with democratic institutions, in order to monitor and defend their capital. Foreign investors also prefer developing states with smaller militaries to reduce the amount of coercion potential the host government can wield against external capital. Yet political instability does not seem to affect foreign investments as expected. A rationale for this finding is that domestic disturbances do not necessarily target foreign investors or their operations.