Foreign Direct Investment in Political Influence

• In Event: Analyzing the Anti-Globalization Backlash: the Role of FDI

Abstract

Do foreign firms engage in domestic politics, and if so, why? I argue that foreign firms impacted by the externalities of domestic politics in other countries may create/utilize local subsidiaries to have their interests represented in those markets. In the US, foreign firms can gain access to federal campaigns through their local subsidiaries, and I find US subsidiaries of foreign firms to be more politically active than similarly sized American firms. They have a greater likelihood to sponsor a PAC and they donate in greater amounts. Further, I demonstrate that this greater political intensity of US subsidiaries is driven by the desire of the foreign parents to gain political leverage in domestic politics, rather than the local subsidiaries' need to protect investment against political risk in a host country. Foreign direct investment therefore partly serves as an investment in political influence.

Author

• Jieun Lee, University of Michigan