Personal Networks, State Financial Backing and Foreign Direct Investment

• In Event: Lobbying and Firm Influence

Abstract

The “new, new trade theory” argues that firm-specific attributes such as size explain why large firms predominantly engage in foreign direct investment (FDI) and thus reap most of the rewards of globalization. However, studies have neglected the importance of firms’ political influence over core financial institutions. I hypothesize that government loans in support of FDI are made to politically active firms. Using a unique, hand-coded political career dataset about 4,936 directors of South Korean firms and these firms’ FDI announcements, I show that firms that place elite officials and politicians on their boards engage in greater FDI than firms without such board-member connections. I show that the outsized gains that large firms receive from globalization are importantly dependent on their links to their home government.

Author

• Seungjun Kim, University of California, Merced