Domestic Politics, Distributive Concerns, and Foreign Direct Investment Policy

Session Submission Type: Full Paper Panel

Session Description

Increasingly, scholars of political economy have catalogued the channels through which multinational firms, and policies designed to attract their investment activities, can generate economic and social costs in host economies. The first three papers on this panel address various ways in which the politics of FDI can generate negative consequences for host governments. Bauerle Danzman, Cavallo, and Bunte use investment announcements in the US, geocoded to congressional district, to examine how electoral competition influences timing of foreign investment announcements. Their findings suggest localize electoral competition generates strong incentives for elected officials to manipulate investment announcement timing, which may lead to overbidding and regulatory environments that excessively favor globally mobile firms. Pond and Quinn introduce a new methodology for measuring FDI restrictions and demonstrate that when inward FDI leads to substantial domestic firms exiting the market FDI liberalization can reduce economic growth. Bodea, Ye, and Kerner provide evidence that bilateral investment treaties, which countries sign in attempts to attract FDI, create fiscal constraints on the state by reducing state capacity to tax. While the panel’s first three papers emphasize ways in which FDI policies and flows can generate costs to host economies, its final paper considers how developing country governments can use FDI policy as a tool of development. Ravi argues that decentralization complicates development countries’ attempts to attract capital intensive inward FDI; consequently developing countries with state-led finance systems have increasingly used outward FDI policy to aid domestic firms in acquiring strategic assets abroad.

Sub Unit

• DIVISION 16: International Political Economy

Individual Presentations

• Political Investment Cycles: Electoral Competition and Timing of Announcements - Sarah Bauerle Danzman, Indiana University; Paulo Cavallo, The University of Texas at Dallas; Jonas Bunte, University of Texas at Dallas

• When Does FDI Liberalization Limit Domestic Growth? - Amy Pond, Texas A&M University; Dennis P. Quinn, Georgetown University

• Bilateral Investment Treaties and Fiscal Constraints in Developing Countries - Cristina Bodea, Michigan State University; Andrew Kerner, Michigan State University; Fangjin Ye, Michigan State University

• The Political Determinants of Outward Investment Policy in Developing Countries - Aparna Ravi

Chair

• Sarah Bauerle Danzman Indiana University

Discussants

• Quintin H. Beazer Florida State University

• Benjamin A.T. Graham University of Southern California