Political Investment Cycles: Electoral Competition and Timing of Announcements

• In Event: Domestic Politics, Distributive Concerns, and Foreign Direct Investment Policy

Abstract

How does electoral competition affect investment attraction? Previous research provides evidence that politicians are likely to provide investment incentives to incoming businesses as a way to curry favor with voters who value economic growth. At the same time, this research is silent on the extent to which incentives to pander are mediated by electoral competition. If incumbent politicians exert effort to attract investment as a bid to win elections, then their level of exertion should be higher when electoral outcomes are likely to be close. We test this expectation in two ways. First, we use observational data on all foreign investment projects in the US from 2003 – 2018, geolocated to congressional district. Using matching techniques, we test whether electoral competition increases investment announcements in advance of elections. To guard against possible simultaneity of macroeconomic trends, we run difference in difference models that measure the influence of competitive elections on investment announcements in congressional districts with and without incumbent candidates. Second, we use survey experimental data of politicians to probe our hypothesized causal mechanism – that incumbent politicians in competitive districts work hard to generate investment announcements in advance of elections to increase their showing at the polls. Our results have implications for the extent to which democratic competition can exacerbate the offering of investment incentives to large, powerful transnational firms

Authors

• Sarah Bauerle Danzman, Indiana University

• Paulo Cavallo, The University of Texas at Dallas

• Jonas Bunte, University of Texas at Dallas