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Foreign Direct Investment and Elections: The Impact of Greenfield FDI on Incumbent Party Reelection in Brazil
Abstract
Governments actively court foreign direct investment (FDI) as a tool for economic growth and development. Despite the important role of FDI in the global economy, we do not know how this activity affects election outcomes. Crucially, state and local governments are often responsible for attracting FDI. Although FDI creates jobs, it also generates competition for domestic producers. Drawing on theories of global production, I argue that inward FDI increases the net welfare of voters in the local host economy. Therefore, new investment should increase the electoral success of incumbent parties in local elections. I use new project-level greenfield FDI data to test this claim in the context of Brazilian mayoral elections between 2004 and 2012. I find that the announcement of a new investment project increases the probability that the incumbent party wins reelection. The findings suggest a channel through which globalization directly affects mass politics at the subnational level.
... Third, connections exist between this study and the debate over Chinese FDI as a cohesive political economic strategy. Numerous studies cite potential advantages to FDIreceiving countries (Jensen et al., 2012;Owen, 2019;Pandya, 2016), though others note potential costs associated with FDI (Brazys & Kotsadam, 2020;Christensen, 2019;Owen, 2019, Pinto & Zhu, 2016, and still others stress that China itself pursues no grand agenda in the investments of Chinese firms (Ye, 2020). ...
... Third, connections exist between this study and the debate over Chinese FDI as a cohesive political economic strategy. Numerous studies cite potential advantages to FDIreceiving countries (Jensen et al., 2012;Owen, 2019;Pandya, 2016), though others note potential costs associated with FDI (Brazys & Kotsadam, 2020;Christensen, 2019;Owen, 2019, Pinto & Zhu, 2016, and still others stress that China itself pursues no grand agenda in the investments of Chinese firms (Ye, 2020). ...
... As Fig. A1 in the Appendix illustrates, projects that were excluded due to imprecise geolocations do not differ notably from the precisely located ones in terms of observable characteristics such as the sector, state-versus private-owned status, and year of establishment, giving us confidence that those projects do not differ from the included ones in ways that might correlate with the outcomes of interest. 5 We acknowledge potential shortcomings in any dataset that relies on media sources, though we stress the extensive nature of the dataset beyond the Financial Times' own reporting, as well as its use in other studies (e.g., Owen, 2019). We prefer the fDi Markets data over other potential sources because we wish to focus on greenfield investments in new physical facilities rather than mergers and acquisitions, given our interest in African citizens' reactions to new Chinese projects in their communities. ...
Chinese Foreign Direct Investment (FDI) to Africa is quickly becoming a centerpiece of China’s approach to promoting development overseas. To this point, however, little is known about the extent to which those investment projects inspire popular support for a China model of development in Africa, or whether Chinese FDI invites skepticism and concern among community members in the region. In this study, we investigate the effects of proximity to Chinese FDI on local perceptions of China’s approach to development in Africa. We geolocate 200 Chinese investment projects, and we spatially connect those data to responses from over 35,000 georeferenced survey respondents across 21 countries. By comparing responses from those living near operational Chinese FDI projects to responses from those living near eventual locations of Chinese investment but where no project yet exists at the time of the survey, we determine the proximity effects of Chinese FDI on views of the China model of development while accounting for the potential nonrandom location of those investment projects. The findings indicate that, on average, living near Chinese FDI projects reduces support for a China model of development. Furthermore, specific types of FDI projects evoke distinct evaluations of China’s presence. Specifically, respondents living near manufacturing projects view infrastructure development as a positive contribution from China, whereas those living near resource-related projects express concerns about Chinese land grabs and job threats. Those living near service projects hold more mixed views. The results suggest that people living in close proximity to Chinese FDI projects in Africa are swayed less by global development narratives than by how those projects shape their everyday lives and experiences.
... This pattern of unmet expectations and political blame does not appear in the context of Chinese foreign aid. P olitical leaders in developing countries typically value inflows of foreign direct investment (FDI) as a driver of economic development and a signal of political competence (Jensen and Malesky 2018;Simmons et al. 2016), despite debate about its actual consequences (Farole and Winkler 2014;Kosack and Tobin 2006;Owen 2019). We know little, however, about how constituents in developing countries evaluate political leaders when FDI projects come to their communities or whether politicians actually gain the benefits they anticipate from foreign investment. ...
... Theoretically, we know that political leaders stand to benefit from FDI inflows in various ways: FDI is thought to enhance local economic development, owing to increases in growth and follow-on benefits for employment, tax revenues, and foreign exchange (Aizenman and Sushko 2011;Farole and Winkler 2014;Jensen et al. 2012). Moreover, studies demonstrate empirically that multinational corporations pay higher wages and generate increased productivity relative to local companies (Pandya 2016) and that those higher wages can create wage spillovers that benefit all workers (Owen 2019). ...
... An extensive literature notes that increased competition from FDI can crowd out local firms (Owen 2015;Pandya 2014;Pinto and Pinto 2008), implying that new projects could harm the reputations of local leaders associated with such investments. Scholars also document potential political costs due to environmental degradation (Acharyya 2009), corruption (Owen 2019;Pinto and Zhu 2016), and labor market volatility (Scheve and Slaughter 2006). ...
Leaders in the developing world typically value inflows of foreign direct investment, on the logic that FDI bolsters economic development and signals competence to voters. Yet the promise of new jobs and other benefits may outstrip the supply, leaving many disappointed. We present a theory of unmet expectations and political blame, which we test by connecting 223 georeferenced Chinese FDI projects to the political-economic perceptions of 179,278 respondents in Africa. We show that the announcement of Chinese FDI projects inspires economic optimism and bolsters perceptions of political leaders’ competence for about one year. Once projects are operational, however, individuals living near those projects view the economy as worse than it would have been in the absence of FDI, and perceptions of political leaders similarly decline. This pattern of unmet expectations and political blame does not appear in the context of Chinese foreign aid.
... First, as the greenfield investment requires constructing the whole thing from scratch, it could create significant impacts on capital stock for production, which is an essential element of growth (Nguyen et al., 2021). Second, greenfield investments could stimulate growth as the result of improved competition and the facilitation of job markets (Nguyen et al., 2021;Owen, 2019). However, there are also risks associated with the formation of new entities abroad, since the capital requirements and local market knowledge can be considered as significant barriers (Yahya and Rafiq, 2020). ...
... First, the process of cross-border acquisition tends to be more complicated than a domestic acquisition since cross-border activities involve considerable variations (especially culture) that occur between the countries of corporations participating in the acquisition (Basuil and Datta, 2015;Collins et al., 2009;Lee et al., 2019;Vermeulen and Barkema, 2001). Second, cross-border acquisitions are normally considered by elevated levels of information asymmetry and uncertainty (Basuil and Datta, 2015;Owen, 2019). ...
... First, as the greenfield investment requires constructing the whole thing from scratch, it could create significant impacts on capital stock for production, which is an essential element of growth (Harms & Méon, 2018;Nguyen et al., 2021). Second, greenfield investments could stimulate growth as the result of improved competition and the facilitation of job markets (Nguyen et al., 2021;Owen, 2019). However, there are also risks associated with the formation of new entities abroad, since the capital requirements and local market knowledge can be considered as significant barriers . ...
... (Basuil & Datta, 2015;Collins et al., 2009;Lee et al., 2019;Vermeulen & Barkema, 2001). Second, cross-border acquisitions are normally considered by elevated levels of information asymmetry and uncertainty (Basuil & Datta, 2015;Owen, 2019). ...
Foreign direct investment is defined as expanding a business beyond one’s domestic country, is a continuously growing topic that has gained the attention of numerous scholars all around the world. This interest has developed as a result of the great economic and social impact FDI leaves in a society. The purpose of this paper is to present a bibliometric review on this topic including all papers published until 2020 as there is a need to have a comprehensive analysis on all literature that will help in identifying the literature gap and guide future researchers when conducting their research. The bibliometric analysis methodology was conducted on 4,525 articles between 1942 and 2020 on the subject of FDI. The data was extracted only from Scopus as we wanted to focus our attention on the leading worldwide used citation database that includes modern material. The top authors, countries, organizations, and documents were also identified.
... Do foreign investors have subnational partisan preferences? Foreign direct investment (FDI) has significant economic and political effects for recipient countries, but investment projects especially affect the territorial entities in which they are located (Jensen and Rosas 2007;Owen 2019). This motivates subnational entities to compete with national peers and to enter in international bids for FDI, especially in countries with federal structures of government. ...
... Partisan politics seem to matter, and other aspects of subnational electoral competition may matter, too (Beer and Mitchell 2004;Gibson and Suarez-Cao 2010). In this sense, this research also speaks to work analyzing the local effects of investment policies (Jensen and Rosas 2007;Owen 2019) and potential feedback effects between globalization and local politics (Ezrow and Hellwig 2014;Hellwig and Samuels 2007;Rommel and Walter 2017). A further step in this direction is to provide a unified framework linking national and subnational politics to fully understand investment decisions and their consequences. ...
Do foreign investors have subnational political preferences? The political economy of foreign direct investment (FDI) involves not only choosing among host countries, but also the subnational location of the assets. However, factors affecting investors' decisions about subnational location likely differ from the ones affecting international investment. This paper studies the effect of state-level partisanship on new FDI inflows to Mexican states. I argue that investors prefer states ruled by left-wing governors because they are more likely to invest in human capital. Statistical analyses using new data on subnational allocation of FDI in Mexican states between 1999 and 2017 support the main hypothesis. Given the persistence of authoritarian enclaves in Mexico, I also disentangle the effects of partisanship from subnational democratization. The partisan effect is independent from party turnover and political competition at the subnational level, and it is robust to different model specifications and estimation strategies. Additional evidence supports the plausibility of the argued mechanism. https://journals.sagepub.com/doi/10.1177/10659129211030331
... The reason is as follows. FDI generates distributional consequences or competing interests for different groups in host countries (e.g., Pinto and Pinto, 2008;Owen, 2019). Some parties and their constituencies might benefit from FDI, whereas some parties and their constituencies might suffer losses from FDI. ...
... Some parties and their constituencies might benefit from FDI, whereas some parties and their constituencies might suffer losses from FDI. For example, skilled labor may benefit from FDI because FDI inflows increase wages and labor demand while domestic enterprise owners may suffer from FDI inflows because FDI inflows increase competition, which erodes their profits (Owen, 2019;Pinto and Pinto, 2008). Relative to a low level of governing party fractionalization in government, competing interests over FDI are more likely to be represented under a high level of governing party fractionalization in governments in host countries. ...
Based on real option theory and transaction cost theory, we hypothesize that a high level of governing party fractionalization in the host country’s government fosters FDI because high governing party fractionalization is associated with low economic policy uncertainty. By using the data of governing party fractionalization in 135 host countries and greenfield FDI projects from China from 2003 to 2015, the findings of the study confirm the positive effect of governing party fractionalization on FDI. Moreover, the results of our studies confirm that the positive effect of governing party fractionalization on FDI is weakened for investing firms with experience in host countries and with central government ownership, for FDI projects conducted in natural resource industries, and in host countries with high GDP growth and low capital abundance. We further confirm that economic policy uncertainty is a mechanism through which governing party fractionalization influences FDI.
... Similarly [36] investigated the European Union nations sample and reported that Greenfield-FDI boosts host country investment. [37] revealed that Greenfield investment is the best possible option for politicians to announce new projects for the attraction of voters. The study assessed that Greenfield investment is consider as tool that increases the chances of re-election with no influence on the results decisions [38]. ...
Greenfield investment is considered the backbone of emerging economies and developing countries. This research is carried out to investigate the causal impact of Greenfield investment as a target variable and some other controlled variables for the sample of 23 Latin American and Caribbean (LA&C) developing countries. The period is 1998–2017, and Levin, Lin and Chu (LLC) and System-Generalized Method of Moment (Sys-GMM) techniques are employed for analytical analysis. The Sys-GMM technique estimates show that Greenfield investment has a significant positive impact on these countries’ economic growth, health, education, and welfare. Furthermore, controlled variables remittances have a significant and positive impact, while foreign aid has a negative effect on the dependent variables. The rest of the other controlled variables show mixed results. From the analysis, it is suggested that Greenfield investment has improved per capita income, education and health sector that further enhanced the welfare of the society. In addition, new foreign investment creates job employment and brings innovations that improve labour skills. On the other hand, foreign aid must be avoided, which harms the economic activities of developing countries. Therefore, it is concluded that governments of Latin American and Caribbean developing countries adopt more friendly policies to attract Greenfield investment.
... When this inflow of investment occurs, wages increase and rents decrease, workers favor FDI, and owners of capital oppose FDI. In the literature, theoretical and empirical studies have documented that workers tend to benefit from inflows of FDI because the wages and working opportunities increase; however, capitalists tend to suffer from this phenomenon because the return to capital in the FDI-receiving country tends to decrease (e.g., Owen, 2019;Sjöholm & Lipsey, 2006; see also the reviews by Pinto (2013). This finding is in line with the Heckscher-Ohlin model, which asserts that "all factors are assumed to be fully mobile and thus inward FDI benefits domestic labor and hurts domestic capital" (Owen, 2019, p. 617). ...
Although the "parties-do-matter-hypothesis" has been recognized, we know little about the micro-level effect of the political ideology on cross-border acquisition (CBA). This study investigates the impact of the political ideology of a governing party in host countries on Chinese multinational enterprises' (CMNEs) CBAs. Drawing on the concept of organizational legitimacy from neo-institutionalism, we build a theoretical framework to explain this impact and the conditions that influence the magnitude of this impact. By using the data of country-level political ideology and CBAs conducted by CMNEs from 1995 to 2017, our findings show that the rightwing ideology of the governing party in a host country has a negative influence on CMNEs' CBA completion, and the magnitude of this negative influence is conditional on host countries' economic and political conditions. Specifically , the negative effect is weaker in host countries in an economic recession, with a higher level of democracy , and with a minority government.
... Also, the dataset involves a quality check process to confirm the validity of announced FDI projects. 28 Prominent studies in business and political science have begun to use the fDi Markets dataset (Albino-Pimentel et al., 2018;Owen, 2019). Using FDI project announcement data provides precise information about when individual MNCs from home countries made the decision to invest in host countries, thereby allowing this 25 Of the 391 BITs that developed home countries have signed during the examined period, 376 were with developing partner countries. ...
It is commonly accepted that developing countries pursue the creation of bilateral investment treaties (BITs) to attract foreign direct investment (FDI). However, it is relatively unknown what role developed countries play in the creation of BITs. When negotiating FDI deals, multinational corporations (MNCs) anticipate potential investment disputes between themselves and the host government. MNCs seek to reduce future investment risks, and asking their own government to secure BITs with the host country is an attractive option for doing so. To test my argument about capital-exporting actors influencing BITs, I analyze FDI project announcement data, which captures the timing of when MNCs finalize their plans to engage in FDI. The findings show that MNCs’ already-planned FDI is strongly associated with the probability of subsequent BIT signing between the home and host country. Moreover, by matching firm-level financial information with FDI project announcements, I show that home countries are more likely to establish BITs with host countries when large firms are the source of the planned FDI. These findings suggest that BIT creation is not driven solely by host countries’ economic needs, but also by home countries’ desire to protect their politically privileged firms.
... FDI is an important outcome of interest, although insufficiently studied regarding its possible relationship with organized crime. FDI is crucial to economic development (Bhagwati 2007;Jensen and Rosas 2007;Jordaan 2008a), and even government stability (Malesky 2008;Owen 2019). Some studies examine how political violence may deter FDI (Powers and Choi 2012), and scholars have begun to explore relationships between criminal violence and investment. ...
How does organized crime affect foreign direct investment (FDI) in developing countries? Some research examines the effects of crime, such as homicide rates, on FDI. However, we know little about how organized crime in particular might affect such investment. This paper examines organized crime and FDI in Mexican states between 2000 and 2018. This case is important because Mexico is one of the top global recipients of FDI. At the same time, criminal violence has killed hundreds of thousands of people in Mexico in recent years, and scholars seek to understand the violence's wider effects. We explain how organized crime competition, as opposed to crime generally, should shape investors' decisions. Analyses using original data on criminal organization territory find that higher numbers of criminal groups are associated with lower levels of new FDI. Other measures of crime, such as homicide rates or crime rates, are not associated with foreign investment. Previous versions of this paper were presented at the APSA, ISA-FLACSO, and REPAL annual meetings. We thank Pablo Pinto for comments. We also thank
... The study of [Owen, 2019] found that the announcement of new GFDI projects by a ruling party in Brazil increased the chances for reelection. The author used the data of GFDI projects from 2004-2012 and found that the announcement of GFDI and its reselection by masses have a positive relationship, while GDP and population have an insignificant effect on GFDI. ...
multinational corporation usually invests in foreign countries in two modes of Foreign Direct Investment (FDI) encompasses, Greenfield-FDI (GFDI) and Merger & Acquisition (M&A). Mostly Asian countries have experienced improved economic growth from the incoming Greenfield-FDI. The existing studies reveal that GFDI plays undeniably a very important role in the process of economic growth and economic development of a host country's economic performance. Thus, the goal of this study is to know the effect of GFDI inflow on education, health, living standard, and economic development for Pakistan, while using data set from 1990–2018. This study used the Correlation matrix, Augmented Dickey-Fuller (ADF), and Philips Peron (PP) tests for unit root, Auto Distributive Lag model (ARDL), and Error Correction Model (ECM) as estimation techniques. The empirical results indicate that there exists a long-run relationship between GFDI, health, and economic development by Human Development Index (HDI) only. In the long-run GFDI, remittances, and foreign trade have positive, while foreign aid by Official Development Assistance (ODA) and inflation rate negatively affect the life expectancy index, which might mean negative health effects. These findings suggest some important policy measures can be adopted to take more benefits of FDI and stimulate economic growth and socio-economic development.
... The study of [Owen, 2019] found that the announcement of new GFDI projects by a ruling party in Brazil increased the chances for reelection. The author used the data of GFDI projects from 2004-2012 and found that the announcement of GFDI and its reselection by masses have a positive relationship, while GDP and population have an insignificant effect on GFDI. ...
A multinational corporation usually invests in foreign countries in two modes of Foreign
Direct Investment (FDI) encompasses, Greenfield-FDI (GFDI) and Merger & Acquisition (M&A).
Mostly Asian countries have experienced improved economic growth from the incoming Greenfield-
FDI. The existing studies reveal that GFDI plays undeniably a very important role in the process
of economic growth and economic development of a host country's economic performance.
Thus, the goal of this study is to know the effect of GFDI inflow on education, health, living standard,
and economic development for Pakistan, while using data set from 1990–2018. This study
used the Correlation matrix, Augmented Dickey-Fuller (ADF), and Philips Peron (PP) tests for
unit root, Auto Distributive Lag model (ARDL), and Error Correction Model (ECM) as estimation
techniques. The empirical results indicate that there exists a long-run relationship between GFDI,
health, and economic development by Human Development Index (HDI) only. In the long-run
GFDI, remittances, and foreign trade have positive, while foreign aid by Official Development
Assistance (ODA) and inflation rate negatively affect the life expectancy index, which might mean
negative health effects. These findings suggest some important policy measures can be adopted
to take more benefits of FDI and stimulate economic growth and socio-economic development.
... These efforts have the potential to shape a range of substantive economic and political outcomes at the subnational level. Scholars have shown how foreign investment and the operations of multinational corporations (MNCs) may affect subnational election results (Owen, 2019), corruption levels (Brazys & Kotsadam, 2019;Zhu, 2017), and income inequality (Jensen & Rosas, 2007). 1 In this paper, we examine the effects of FDI on subnational public finances, a relationship that has received insufficient scholarly attention. ...
During the 1990s, many developing countries underwent simultaneous processes of global economic integration and decentralization. As a result, subnational governments became increasingly important actors in the international economy, including through policies to secure investments from multinational corporations (MNCs). These efforts have the potential to affect the management of public resources at the subnational level. Breaking from the literature's focus on fiscal incentives, we highlight how “active” foreign investment incentives—including commitments to build new infrastructure and develop worker training programs—have shaped subnational public finances in Mexico. We demonstrate that FDI attraction affected how subnational governments exercised their growing policy authority and fiscal resources. Based on panel data from Mexican states between 1998 and 2017, we find that FDI shocks are associated with statistically and economically significant increases in public investment by state governments, and decreases in public sector consumption of goods and non-personnel services. A case study of a representative investment project in Puebla highlights the importance of active investment incentives as a causal mechanism linking FDI attraction and subnational spending outcomes. Our results illustrate how FDI attraction can affect the distribution of subnational public spending and also develop a theoretically-relevant distinction between passive and active investment incentives.
... Investasi Langsung Asing (FDI) yang mengalir sebesar US $1,56 triliun pada 2014, kegiatan perusahaan multinasional memiliki kemampuan untuk secara signifikan mempengaruhi hasil ekonomi di negara tuan rumah (Owen, 2018). Investasi langsung merupakan faktor penting untuk pertumbuhan ekonomi. ...
The purpose of this study is studying influence between financing of Islamic Banks, FDI and Economic Growth. The methodology used is a quantitative method usning panel data. We have chosen 10 counties from Organization Islamic Conference (OIC) over the period 2009-2017. The research is the fist study to influence financing of Islamic Bank, FDI and Economic Growth in OIC Countries. The result show that the financing of Islamic Banks and FDI simultaneously and positively has a significant effect on economic growth in the OIC Countries with a significant level of 0.0000
... Our primary outcome variable is a binary indicator that equals '1' if there is a new greenfield or expansion FDI project at site i, time t. These data are sourced from the Financial Times fDi markets database which is being used in an increasing number of political economy investigations (Gil-Pareja et al. 2013;Brazys and Regan 2017;Owen 2018). Like the AidData, this data contains both spatial and temporal information on both the timing and location of the FDI projects. ...
... Complementing previous studies in the FDI literature (He, 2012;Jensen and Rosas, 2007;Owen, 2019), we use subnational data to investigate empirically the determinants of Chinese investment in the USA. For our dependent variable, we use state data from the China Global Investment Tracker (2018). ...
Although recently Chinese investment in the USA has grown exponentially, it has not flowed equally among the US states. Controlling for popular explanations in the foreign direct investment literature, we carry out subnational analysis to assess the determinants of Chinese investment in the USA. Using a panel dataset for all states from 2006 to 2016, we find that Chinese firms are more attracted to states where Republican governors hold office. Republican-governed states particularly attract greenfield investments from Chinese firms. However, we also find that US national security concerns and Chinese goals appear to affect investment flows in high-technology states, limiting the role of partisanship. Our results indicate that it is too soon to dismiss the importance of politics on foreign direct investment.
... Their findings suggest that both information and communication technology and democracy have positive effects on FDI flows. Owen (2016) investigates whether the attraction of inward FDI enhances the electoral fortunes of incumbent parties. The findings from this study provide support for the assertion that FDI inflows have a large and positive effect on the electoral fortunes of incumbent parties. ...
We examine the relation between foreign direct investment (FDI), elections and welfare in Africa using data from 1990 to 2014. Our results show evidence that elections play a positive role in altering the relationship between FDI and welfare as they are considered by investors as risk reduction events. Interestingly, when we split the sample based on the quality of institutions, we find that the interaction between FDI and elections is mostly insignificant in countries with strong institutions. However, the interaction between FDI and elections is positive and significant in countries with weak institutions.
Incumbents who resort to violence in efforts to secure their hold on power have been a major challenge for sub-Saharan Africa. At the same time, opening up domestic markets to international capital in the form of Foreign Direct Investment (FDI) has provided governments with more resources to garner the support of their citizens. How are these developments related? We argue that FDI reduces the likelihood that incumbents use violence in competitive regions. FDI has direct economic benefits for the population. Especially in competitive regions, where violence might reduce turnout even among their potential supporters, incumbents thus adapt their re-election strategies and use fewer violent means. We draw on geo-referenced data on election violence, FDI, and previous election results and match these within subnational regions. Investigating subnational variation in 15 sub-Saharan African countries, we find empirical support for our argument. FDI lowers pre-election violence in competitive regions, but has no effect in both incumbent and opposition strongholds. These findings are robust to using 10×10 km and 25×25 km grid cells and have important implications for democratic countries’ foreign policies: allowing multinational companies to invest in developing countries reduces violence, but might simultaneously bolster incumbent regimes.
The question of foreign direct investment (FDI) and socio-political development is debated heavily. Liberals believe that FDI brings economic opportunities and/or increased incentives for peace and security among host societies. Critics suggest that FDI is exploitative, leading to conditions that increase the risk of violence. We take a political economy perspective that views FDI as problematic depending on how FDI affects politically powerful local interests. As such, all forms of FDI should meet domestic opposition, but only FDI in the extractive sector, where domestic political actors have little at stake, escalates to major war. Building on recent work which examines this question pertaining to extractive sector FDI, we introduce sub-national, geo-referenced data on FDI in all sectors for evaluating local conflict using combined data from four distinct geo-referenced conflict databases. Using site-period fixed effects with a difference-in-difference like approach, we find that FDI in all sectors increases local conflict. Conflicts induced by most FDI sectors fall short of becoming civil war, except for extractive sector FDI.
How do multinational firms trapped in host markets suffering from political violence find security? Terrorism and conflict repel foreign investment and recent research has sought to understand heterogeneity across firms in their response to violence. When multinational firms are unable to move their investments in the face of violence, we argue that their home governments use diplomatic capacity and security and economic resources to secure protection from host governments. Multinational corporations from home markets with significant leverage over host markets are therefore less likely to curtail their operations or investments in the wake of violence. Examining dyadic data on foreign direct investment (FDI), we show that home market diplomatic missions, aid, and alliances substantially abate the negative effects of violence on FDI. Consistent with our argument, this effect is observed after violence begins and is not an artifact of host markets garnering security aid from great powers other than the home market. A strong diplomatic presence matched to both hard and soft power resources positively contributes to the defense of core foreign policy interests.
How does economic globalization affect regime support in non-democratic regimes? While we know a lot about how globalization affects politics in democracies, we know only little about its impact on political preferences in autocracies. I focus on FDI, which has increased considerably over the last decades and affects low- and high-skilled individuals differently. Material risks associated with FDI decrease regime support only among the poorly educated; economic gains from FDI bolster support for the incumbent regime for well-educated individuals. I present two analyses that corroborate these hypotheses. Study 1 uses Afrobarometer data and matches respondents with geo-located data on FDI. To mitigate selection problems, I only compare individuals that are exposed to FDI with individuals that are not yet exposed at the time the survey was administered. Study 2 utilizes cross-national survey data from 14 autocracies. My findings explain why some citizens favor the political status quo, even in autocracies.
Why are politicians selective in granting investment incentives to foreign direct investment (FDI) projects? One understudied reason is that politicians want to minimize backlash from voters. In this article, I present the first study to systematically analyze voter preferences toward investment incentives. I theorize that voters should be more likely to support investment incentives for FDI projects that they perceive as “high quality”—that is, projects that voters perceive to be highly effective in improving the living standards of their communities. As a result, I expect that politicians who support low-quality FDI projects with incentives will lose voter support. A factorial survey experiment in the United States provides evidence in favor of this argument. Voters reward politicians only if they provide investment incentives to high-quality projects. An additional conjoint survey experiment highlights the importance of project characteristics that indicate high quality in increasing the approval of investment incentives. To demonstrate the external validity of these experimental results, I present descriptive evidence that illustrates the consistencies between the determinants of investment incentives for FDI projects and voter preferences.
This chapter examines the Brazilian trade and investment regimes and their effects on technological upgrading. It provides detailed coverage of Brazil’s trade agreements, tariff structure, and the effects of China’s industrialization and global integration on Brazilian trade and domestic industry—the so-called “China shock”. It also deals with the impact of capital inflows, leading to a Dutch disease experience in Brazil. Furthermore, it delves into the political economy of Brazilian trade policy, focusing on the Foreign Trade Chamber, CAMEX. Lastly, the chapter covers the efforts towards firm internationalization under the so-called “national champions” strategy. Empirically, the chapter draws on, e.g., tariff data, commodity price data, export and import data, international reserves and capital flow data, as well as expert interviews. It provides insights into the negative effects of the Dutch disease experience for innovation.
Migration is among the central domestic and global political issues of today. Yet the causes and consequences - and the relationship between migration and global markets – are poorly understood. Migration is both costly and risky, so why do people decide to migrate? What are the political, social, economic, and environmental factors that cause people to leave their homes and seek a better life elsewhere? Leblang and Helms argue that political factors - the ability to participate in the political life of a destination - are as important as economic and social factors. Most migrants don't cut ties with their homeland but continue to be engaged, both economically and politically. Migrants continue to serve as a conduit for information, helping drive investment to their homelands. The authors combine theory with a wealth of micro and macro evidence to demonstrate that migration isn't static, after all, but continuously fluid.
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 argue that large firms engage in greater FDI in part because of their political connections, which allow them to receive government loans in support of FDI. Using a unique, hand-coded dataset that includes 4936 directors of South Korean firms and these firms’ FDI announcements, I show that firms that place elite financial officials on their boards engage in greater FDI than firms without such board-member connections. Therefore, the outsized gains that large firms receive from globalization are dependent on their political ties to their home government.
Rising popular discontent with globalization in Europe and the United States has occurred alongside increasing support for extreme right-wing parties, protectionism, and anti-immigrant views. This globalization backlash seems to be contributing to economic globalization’s abatement, especially with respect to trade but increasingly foreign investment, immigration, and participation in international institutions as well. What are the key forces driving these recent events and what are their broader political and institutional consequences? This special issue aims to provide an understanding of some central features of the anti-globalization furor. The studies in this special issue provide fresh insights into the economic factors contributing to the backlash while also addressing how they might interact with cultural forces. It concludes with a discussion of why the globalization backlash has not diffused widely to the developing world.
As countries are becoming increasingly connected with one each other, it is essential to study the influence multinational firms have on political outcomes in the countries where they locate. This paper examines the effects of foreign direct investment (FDI) on party vote shares in 149 countries between 1990 and 2017. We construct a database by cataloging political parties into specific political positions. We use a measure of linguistic distance between countries to construct a novel instrumental variable using the average exchange rate of the surrounding region. With this IV, we capture the relative attractiveness of FDI in host countries. Our results indicate that increased FDI causes an increase in vote shares for right-wing parties. We also find suggestive evidence of increased left-wing support in developing countries and legislative elections. We show that more moderate parties, specifically center-right parties, generally lose vote shares as FDI increases.
Using a sample composed of the 298 Honduran municipalities for the period 2006–2014, we evaluate the impact of budgetary, political and socioeconomic factors on the probability of mayors’ re-election. The findings show that mayors who have initiated greater municipal spending are more likely to be re-elected (a $100 increase in real per capita expenditure increases re-election chances by 19.01%). This finding partially supports both public choice theory and the theory of political budget cycles: voters prefer increased spending. Furthermore, mayors with greater transfers from higher levels of government have more chance of being re-elected. When it comes to political factors, progressive parties and mayors with a majority have more chance of being re-elected.
It remains unclear if foreign direct investment (FDI) benefits local citizens in host countries. Combining geo-referenced FDI data and household level surveys, this paper uses spatial-temporal techniques to assess how FDI impacts individual corruption experiences. We investigate if this relationship is conditional on the corruption levels, or engagement with the OECD's anti-bribery convention (ABC), of the FDI's source country. We find evidence that FDI flows reduce individual bribery experiences, but only when existing levels of corruption are high. We find it is FDI from comparatively more corrupt, and non-ABC engaging, countries that locates to areas of high corruption. Further, FDI appears to improve both the employment prospects and financial positions of local households. Collectively, we argue that these results suggest that individual empowerment via a wealth effect, rather than spillovers from firm professionalization or regulatory pressure mechanisms, is what stems individual corruption experiences.
Does an individual’s exposure to aspects of globalization impact their willingness to redistribute to the poor? We hypothesize that the “glitter” of foreign direct investment (FDI) in developing countries leads relatively better-off citizens to perceive that the poor now have more opportunities and are thereby less deserving of help. Findings from an experiment across three states in India reveal that subjects lower their financial support for the poor upon learning a foreign firm in a low-skilled sector is located in the vicinity. Text analysis of subjects’ responses supports the mechanism underlying our hypothesis: FDI reduces support for redistribution when subjects believe that foreign firms offer the uneducated poor higher wages and increased job opportunities.
This article examines mass public opinion toward international financial-market regulations, known as “capital controls.” Conventional wisdom maintains that most voters do not pay attention to or care about capital controls, but no previous studies have directly evaluated this claim. We argue that capital controls are likely to become a publicly salient issue under some conditions—specifically, when economically unstable countries reimpose regulations on capital outflows. Original data from two surveys fielded in Argentina support this argument. We show that most citizens are knowledgeable about capital controls, many consider it an important issue, individuals’ preferences reflect their economic self-interest, and attitudes toward capital controls influenced vote choice in a presidential election. These results, along with illustrative evidence from four other cases, indicate that ostensibly complex policy issues such as international financial regulation can become electorally salient under some conditions.
This article addresses the paradox of unpopular corruption and popular corrupt politicians. It explores why corrupt politicians are reelected, paying particular attention to incumbent provision of public goods and voter information on incumbent misconduct. Using a new data set on mayoral elections (2000 and 2004) in the Brazilian state of Pernambuco, we specify econometric models to test the hypothesis that incumbents’ performance in delivering public goods might mitigate reputational losses. Our main empirical analysis suggests that (1) corruption decreases the probability of incumbent reelection, (2) public expenditure increases the probability of reelection, and (3) the negative marginal effect of corruption on reelection disappears as public expenditure increases.
RESUMO:
Este artigo analisa o paradoxo existente entre a impopularidade da corrupção e a popularidade de políticos corruptos. Particularmente, o artigo investiga por que políticos corruptos são reeleitos, com ênfase por um lado, na provisão de bens públicos, e por outro no acesso à informação dos eleitores sobre o comportamento desviante dos governantes. A partir de um novo banco de dados sobre as eleições para prefeito (2000 e 2004) de todos os municípios do estado brasileiro de Pernambuco, são especificados modelos econométricos para testar a hipótese de que a performance de governantes ofertando bens públicos pode mitigar os efeitos negativos de corrupção. Os principais resultados empíricos sugerem: corrupção diminui a probabilidade de reeleição; maior gasto público aumenta a probabilidade de reeleição; o efeito marginal negativo de corrupção sobre reeleição desaparece quando o gasto público aumenta.
Many developing countries use tax incentives to attract foreign direct investment, sacrificing immediate revenue from foreign capital, even though the effects of tax incentives on investment, growth, and revenue are empirically dubious. This leads to the puzzle of why states adopt tax incentives. Extant studies of tax incentive adoption overlook the fact that many countries have decentralized fiscal authority, allowing subnational governments to offer tax incentives. Public finance scholars argue that fiscal federalism intensifies tax competition among regions. Hence, drawing on the public finance scholarship, one may ask: Does fiscal decentralization lead to a race to the top among subnational governments and an oversupply of tax incentives in a country? This article argues that fiscal decentralization affects tax incentives in complex ways. When subnational governments are authorized to set tax policies, their politicians have economic and political incentives to engage in tax competition for mobile capital, providing more tax incentives in a country. However, the politicians are less likely to do so if they are held accountable and have to fund most expenditures through own-source tax revenues. An empirical analysis of over 50 developing countries in early 2000s produces robust supporting evidence. This research challenges both the view that fiscal decentralization is always beneficial and the view that horizontal competition invariably produces inefficiently low tax rates. The impact of fiscal decentralization on tax incentives and by implication, revenue mobilization depends on the design of the central–local government relations.
The competition for global capital has led to interjurisdictional competition between countries, states and cities as to who can offer the most attractive incentives to firms. In this study, we examine the domestic politics of this competition by focusing on incentive use in the United States from 1999 to 2012. We define incentives as the targeted tax deductions or exemptions that are used to lure businesses into a locality. Drawing on data from municipal incentive programs, we examine how electoral competition shapes the use and oversight of targeted incentives. We find evidence that cities with elected mayors provide larger incentives than non-elected city managers by taking advantage of exogeneity in the assignment of city government institutions and a database of over 2000 investment incentives from 2010 to 2012. We also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts. Our results have important implications for the study of interjurisdictional competition and the role of electoral institutions in shaping economic policy.
Many areas of political science focus on causal questions. Evidence from statistical analyses is often used to make the case
for causal relationships. While statistical analyses can help establish causal relationships, it can also provide strong evidence
of causality where none exists. In this essay, I provide an overview of the statistics of causal inference. Instead of focusing
on specific statistical methods, such as matching, I focus more on the assumptions needed to give statistical estimates a
causal interpretation. Such assumptions are often referred to as identification assumptions, and these assumptions are critical
to any statistical analysis about causal effects. I outline a wide range of identification assumptions and highlight the design-based
approach to causal inference. I conclude with an overview of statistical methods that are frequently used for causal inference.
High rerunning rates among incumbents and among the two major parties allow studies of U.S. incumbency advantage to bypass
the selection problem of who chooses to rerun. In countries where rerunning is not widespread among individuals or parties,
estimation using methods developed for the United States may result in a sample selection bias. In countries with party switching,
there may be a disconnect between party and individual estimates. This article proposes a definition of incumbency advantage
that is valid for countries that present any of these characteristics and that is valid for cross-country comparison: the
effect of incumbency for an individual politician on the unconditional probability of winning. I illustrate the issues raised in this article with evidence from Brazilian mayoral elections.
Does increasing economic globalization influence aggregate policy mood toward the role and size of government in the United States? Drawing on insights from international political economy scholarship, this article suggests that the impact of trade on aggregate preferences will depend on citizens’ exposure to trade. It hypothesizes that employees of import-competing, export-oriented and multinational firms will adopt a ‘compensatory’ model in which higher levels of imports (exports) lead to a liberal (conservative) shift in policy preferences for more (less) government. It distinguishes between intrafirm and non-intrafirm trade flows. It measures policy mood using Stimson's ‘Mood’, and estimates Error Correction and Instrumental Variable models. Trade flows strongly influence Mood in a manner consistent with hypotheses drawn from international political economy and heterogeneous firms (or ‘new new’) trade theory.
This article explores the link between industrial policy and electoral outcomes under dictatorship. Using a difference-in-differences analysis of county-level panel data from 1971–88 in South Korea, it examines whether the industrial policy implemented by an authoritarian government affects constituents’ electoral decisions. It finds that counties receiving economic benefits through the construction of industrial complexes cast more votes for the incumbent party in subsequent elections. The effects are larger in elections immediately after the appointment of an industrial complex or at the beginning of its construction compared to elections held after the completion of construction. Furthermore, the study tests and rejects reverse causality and migration effects as possible alternative mechanisms for the changes in electoral outcomes. Finally, to understand a unique feature of authoritarian elections, it tests whether industrial complexes affect electoral fraud. Using a genetic matching methodology, it finds that places with new industrial complexes are less likely to experience electoral fraud.
Conventional wisdom has it that political parties have incentives to respond to public opinion. It is also conventional wisdom that in open economies, policymakers must also “respond” to markets. Research on representation has provided ample evidence in support of the first claim. Research on the political economy of globalization has not, however, provided evidence for the second. This article examines the effects of globalization on how parties respond to voters. We argue that while elections motivate parties to respond to public sentiment, economic interdependence distracts political elites from their electorates and toward market actors, reducing party responsiveness to the mean voter. Evidence from a pair of distinct data sources spanning elections in twenty advanced capitalist democracies from the 1970s to 2010 shows that while parties have incentives to respond to left-right shifts in the mean voter position, they only do so when the national economy is sufficiently sheltered from the world economy. These findings have implications for party strategies, for representation, and for the broader effects of market integration.
Has rising trade integration between the U.S. and China contributed to the polarization of U.S. politics? Analyzing outcomes from the 2002 and 2010 congressional elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive 2016 U.S. presidential election. Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by their congressional voting record, we find strong evidence that congressional districts exposed to larger increases in import competition disproportionately removed moderate representatives from office in the 2000s. Trade-exposed districts initially in Republican hands become substantially more likely to elect a conservative Republican, while trade-exposed districts initially in Democratic hands become more likely to elect either a liberal Democrat or a conservative Republican. Polarization is also evident when breaking down districts by race: trade-exposed locations with a majority white population are disproportionately likely to replace moderate legislators with conservative Republicans, whereas locations with a majority non-white population tend to replace moderates with liberal Democrats. We further contrast the electoral impacts of trade exposure with shocks associated with generalized changes in labor demand and with the post-2006 U.S. housing market collapse.
International trade directly influences US presidential elections. We explore the electoral implications of the increasing tradability of services and the large US surplus in services trade. Our paper builds on prior work showing that job insecurity from import competition in manufacturing diminishes political support for incumbents. We construct novel measures of the tradability of an industry using establishment-level data covering nearly all US economic activity. We find increases in incumbent party vote shares in counties with large numbers of workers in high-skilled tradable services as well as goods, and decreases in counties with high employment in low-skilled manufacturing. Incumbent parties are particularly vulnerable to losing votes in swing states with many low-skilled manufacturing workers. In national-level models, we show for the first time that increasing imports (exports) are associated with decreasing (increasing) presidential incumbent vote shares. The national-level effects are large and politically consequential. We also find an Electoral College incentive to protect the manufacturing sector and to oppose trade agreements.
We study how representation works in a context where accountability to voters is restricted because of term limits and accountability to parties is limited because of party weakness. Analyzing all Brazilian mayoral elections between 1996 and 2012 using a regression discontinuity design, we show that becoming the incumbent party results in large subsequent electoral losses. We theorize that the presence of term limits, combined with political parties to which politicians are only weakly attached, affects the incentives and behavior of individual politicians in such a way that their parties’ suffer systematic losses. A descriptive analysis of an original dataset on the career paths of Brazilian mayors suggests that our assumptions are an accurate description of Brazil’s political context, and we find support for three central empirical implications of our theoretical explanation. Moreover, based on an analysis of additional data from Mexico, Peru, Chile, Costa Rica, and Colombia, we show that the negative effects found in Brazil also exist in other democracies.
Competing for Capital' Revisited Models, Models, and More Models Policy Studies Industry Case Studies: Steel, Biofuel Production, Semiconductors, Automobiles, Call Centers The Celtic Tiger: Incentives, Infrastructure, Tax Rates, Luck Who Provides the Most Investment Incentives: EU vs. U.S. The Spread of Investment Incentives to Developing Countries Controlling Incentives and Maximizing the Value of Inward Investment A Policy Agenda for the 21st Century: Transparency and Beyond Notes Bibliography Index
An examination of how US states and governors connect to American foreign relations, this book argues that these subnational actors should be analyzed in international relations scholarship.
We analyze how one of the central drivers of globalization, foreign direct investment (FDI), relates to the prevalence of corruption. According to received wisdom, the link between globalization and corruption depends on the presence of proper political institutions and practices. We develop an alternative explanation that looks at the effect of inward FDI on host market dynamics, which in turn affect the opportunities for rent creation. We argue that, in less developed countries, FDI inflows can increase market concentration, resulting in higher rents that public officials can demand from market actors. Yet, the positive association between inward investment and corruption is mitigated in more developed economies. There, foreign entry into a market populated by productive indigenous firms promotes competition and reduces rents. This lowers opportunities for corrupt behavior. We test this nonlinear relationship between FDI and corruption in an instrumental variable two-stage least squares setting. The results indicate that FDI is indeed associated with higher levels of corruption in less developed countries, but not in developed countries. Our findings highlight the role of globalization in shaping host countries? market dynamics, which often set the parameters of political outcomes.
What explains variation in the relationship between globalization and public spending on compensation across countries? This article argues that the effect of trade exposure on compensation depends on economic geography and electoral institutions. It predicts that trade leads to greater compensation when trade losers are concentrated geographically and politicians have incentives to target specific constituencies. Policy proves least responsive where electoral districts are large and losers are concentrated. Moreover, in systems with small electoral districts, trade increases compensation when losers are concentrated relative to where they are dispersed. In systems with large electoral districts, trade increases compensation only when losers are dispersed. I evaluate these claims by using a panel of 14 developed democracies and a new measure of concentration. The results provide robust support for the argument. The implication is that there is no generalized relationship between globalization and spending. Rather, the welfare effects of globalization are shaped by fundamental considerations of political economy, such as geography and electoral institutions.
We discuss a method for improving causal inferences called ‘‘Coarsened Exact Matching’’ (CEM), and the new ‘‘Monotonic Imbalance Bounding’’ (MIB) class of matching methods from which CEM is derived. We summarize what is known about CEM and MIB, derive and illustrate several new desirable statistical properties of CEM, and then propose a variety of useful extensions. We show that CEM possesses a wide range of statistical properties not available in most other matching methods but is at the same time exceptionally easy to comprehend and use. We focus on the connection between theoretical properties and practical applications. We also make available easy-to-use open source software for R, Stata, and SPSS that implement all our suggestions.
Government economic development programmes provide opportunities for firms to leverage financial incentives for business expansion and relocation. This article examines the ability of these incentives to promote employment. Using establishment-level data from the state of Kansas as well as original firm-level survey data, I evaluate the effectiveness of financial incentives in creating jobs through recipient firms. My findings from the establishment-level data indicate that incentive programmes have no discernable impact on firm expansion, measured by job creation. In addition, the survey data suggest that incentive recipients highly recommend this programme to other firms, but few firms actually increased their employment in Kansas because of these incentives; similarly, very few firms would have left the state if they had not benefited from this programme. Thus, incentives have little impact on the relocation or expansion decisions of firms.
This is the second edition of the celebrated volume by Professor John H. Dunning, first published in 1993, which has now been not only updated but also enriched with the addition of a number of new topics. This addition was not least due to the expertise of the co-author, Sarianna Lundan, in the institutional aspects of international business and the internal governance of transnational corporations (TNCs). It is a comprehensive synthesis of all the theories in International Business based on extremely rich data evaluation in almost all fields of TNC activities and their environment. It is a “creative masterpiece which unbundles the DNA of the field of international business” as described by Alan Rugman in his assessment of this volume.
This book analyzes how increases in international trade, finance, and production have altered voter decisions, political party positions, and the types of public issues that parties focus on in postindustrial democracies. Although many studies interrogate whether internationalization matters in regard to policy outcomes and how globalization relates to mass protest, few examine globalization and mass politics more generally. This book argues that by reducing the room in which to maneuver in policy making, globalization reduces the importance of economic–based issues while increasing the electoral importance of non-economic issues. The argument is tested on original and existing data sources.
After decennia of research on economic voting, it is now established that the state of the economy affects voting behaviour. Nevertheless, this conclusion is the result of a focus on predominantly national-level economies and national-level elections. In this paper, we show that at a local level as well, mechanisms of accountability linked to the economy are at work. The local economic context affected voting behaviour in the 2012 Belgian municipal elections, with a stronger increase of unemployment rates in their municipality significantly decreasing the probability that voters choose an incumbent party. Additionally, we observe that voters are not opportunistically voting for incumbents who lower tax rates. Instead, voters seem to be holding local incumbents accountable for local economic conditions. We hence conclude that voters care about economic outcomes, not about what specific policies are implemented to reach these outcomes.
Economic voting is a widely accepted regularity in the political science literature, yet most work on the subject either assumes that economic performance is a direct result of policy making or, more recently, argues that voters are able to identify when this is not the case. Our article challenges these claims by showing that, in a large subset of Latin American countries, both presidential popularity and prospects of reelection strongly depend on factors unambiguously exogenous to presidents' policy choices. These findings advance the literature on assignment of responsibility for economic performance and pose important implications for democratic accountability.
Labor Rights and Multinational Production investigates the relationship between workers’ rights and multinational production. Mosley argues that some types of multinational production, embodied in directly owned foreign investment, positively affect labor rights. But other types of international production, particularly subcontracting, can engender competitive races to the bottom in labor rights. To test these claims, Mosley presents newly generated measures of collective labor rights, covering a wide range of low- and middle-income nations for the 1985–2002 period. This book suggests that the consequences of economic openness for developing countries are highly dependent on foreign firms’ modes of entry and, more generally, on the precise way in which each developing country engages the global economy. The book contributes to academic literature in comparative and international political economy, and to public policy debates regarding the effects of globalization.
An emerging literature emphasizes the importance of vote brokers for electoral politics in the developing world. Yet in spite of the great interest in the topic, attempts to assess the impact of vote brokerage on election returns are exceedingly rare. This paper provides the first explicit assessment of the electoral returns to politicians from purchasing the allegiances of brokers. It does so by drawing upon a unique dataset documenting the allocation of off-the-books payments to vote brokers during a gubernatorial reelection campaign in the Brazilian state of Minas Gerais. The study finds that in the typical municipality buying off local brokers was associated with a 4-6 percentage point increase in the vote share obtained by the governor. All told, the findings suggest that vote brokerage is a resilient form of political linkage that can shape vote choice even in contexts of vote secrecy and intermediate levels of economic development.
For decades, free trade was advocated as the vehicle for peace, prosperity, and democracy in an increasingly globalized market. More recently, the proliferation of foreign direct investment has raised questions about its impact upon local economies and politics. Here, seven scholars bring together their wide-ranging expertise to investigate the factors that determine the attractiveness of a locale to investors and the extent of their political power. Multinational corporations prefer to invest where legal and political institutions support the rule of law, protections for property rights, and democratic processes. Corporate influence on local institutions, in turn, depends upon the relative power of other players and the types of policies at issue.
How does organized labor shape restrictions on inward foreign direct investment (FDI)? Distributional consequences, drawn from heterogeneous firms theory, suggest that although inward FDI benefits a subset of workers, a greater number of workers is hurt by inward FDI, leading labor in the aggregate to support restrictions on inward FDI. I argue that the political power of labor is determined by the position of labor vis-à-vis other actors in society and the unity of labor’s policy preferences. The share of the labor force that is unionized determines the relative importance of labor interests, while union concentration determines whether the aggregate policy position of organized labor is unified or fragmented. In an analysis of 19 developed countries from 1971 and 2000, I find evidence that greater union density leads to more restrictions on inward investment when unions are concentrated.
This book is the first comprehensive study of foreign direct investment (FDI) liberalization. Political economy FDI research has long focused on how host-country politics influence the supply of FDI, or how firms choose to invest. By contrast, this book focuses on the politics of FDI demand: the sources of citizens' preferences for FDI inflows and countries' foreign ownership restrictions. Professor Sonal S. Pandya's theory of FDI regulation identifies how FDI redistributes income within host countries, raises local wages, and creates competition for local firms. Policy makers regulate FDI inflows to facilitate local firms' access to these highly productive assets and the income they generate. Empirical tests also emphasize the central role of multinational cooperations' productive assets in shaping the politics of FDI. These tests feature an original dataset of annual country-industry foreign ownership regulations that spans more than one hundred countries during the period 1970–2000, the first dataset of FDI regulation of this detail and scope. This book highlights the economic and political foundations of global economic integration and supplies the tools to understand the growing economic conflicts between advanced economics and large emerging markets such as China and India.
A defining characteristic of second-order elections is that voters base their decision on considerations that were developed for a different policy level. Therefore, this kind of elections does not contribute to the quality of democratic representation. Municipal elections are often considered as second-order elections. In this article, we use data from an exit poll (n = 4,591) held during the 2012 municipal elections in Belgium. Results suggest that although voters predominantly invoke local aspects as determining their vote choice, still three-quarters votes for the same party locally as for federal elections. Among voters who deviate from their federal party preference, knowing local candidates and concern about local policy issues are the main sources of deviation. The conclusion therefore is that local candidates do make a difference and contribute strongly to the salience of electoral decisions on the local level.
The debate over the relationship between the location of industry and the incidence of import barriers has been miscast. Three problems call into question the findings reported in the endogenous protection literature. First, geographic concentration is widely used as a proxy for political concentration (i.e., the spread of industry across political districts), although these two variables are conceptually and empirically distinct. Second, extant measures of geographic concentration ignore the spatial relationship among units (e.g., counties or states) in which lumpy industries make their home, thereby often failing to detect concentration where it exists. Third, in those few studies in which political concentration receives any direct attention at all, nonmonotonic effects and interaction terms are seldom tested, despite their grounding in theories of interest group politics more generally. This article addresses all three problems. The results indicate that geographically concentrated but politically dispersed industries are the ones most likely to receive relief from imports, although a handful of very large industries benefit from being politically concentrated. The article thus reveals how to reconcile the two competing hypotheses around which one of endogenous protection theory's most enduring debates has taken shape.
Are jobs created by foreign investors good jobs? The evidence reviewed in this article is consistent with the view that jobs
created by foreign direct investment (FDI) are good jobs, both from the worker’s and the country’s perspective. From the worker’s
perspective, this is because such jobs are likely to pay higher wages than jobs in domestic firms, at least in developing
countries, and because foreign employers tend to offer more training than local firms do. From the country’s perspective,
jobs in foreign affiliates are good jobs because FDI inflows boost the aggregate productivity of the host country.
A great deal of research has focused on the role of governments, nongovernmental organizations, and advocacy groups in promoting environmental ideologies. Researchers and activists have generally assumed antienvironmental and antiregulatory stances on the part of corporations. Exporting Environmentalism is the first book to examine industry's transnational promotion of environmental ideas and practices. The book also challenges and complements other theoretical approaches to the study of international environmental politics. Rather than positing change in national and international environmental policy as the only valuable outcome, it looks at the environmental benefits of changes in perspectives, policies, and practices within the firms themselves.Ronie Garcia-Johnson shows that multinational corporations have incentives to raise the environmental, health, and safety standards of domestic companies in their host countries to maintain their competitive advantage. To determine industry's exportation and importation of environmentalism, Garcia-Johnson focuses on the flow of ideas, values, and strategies from United States-based chemical companies to companies in Mexico and Brazil. The comparative case study explains how and why Mexican and Brazilian companies are importing environmental ideas and changing their production policies. Garcia-Johnson then explores the effects of these private policies on communities, nongovernmental organizations, governments, and national environmental politics within Brazil and Mexico.
A large literature has demonstrated that such economic factors as growth, inflation, and unemployment affect the popularity of incumbents within many democratic countries. However, cross-national aggregate analyses of ''economic voting'' show only weak and inconsistent economic effects. We argue for the systematic incorporation of political factors that shape the electoral consequences of economic performance. Multivariate analyses of 102 elections in 19 industrialized democracies are used to estimate the cross-national impact of economic and political factors. The analyses show that considerations of the ideological image of the government, its electoral base, and the clarity of its political responsibility are essential to understanding the effects of economic conditions on voting for or against incumbents.
This book develops a partisan theory of foreign direct investment (FDI) to explain cross-country and temporal variance in the regulation of foreign investment and in the amount of FDI inflows that countries receive. The author explores the host governments' partisan alignment, whether pro-labor or pro-capital, to determine if they will be more open or closed to FDI. To reach this determination, the book derives the conditions under which investment flows should be expected to affect the relative demand for the services supplied by economic actors in host countries. Based on these expected distributive consequences, a political economy model of the regulation of FDI and changes in investment performance within countries and over time is developed. The theory is tested using both cross-national statistical analysis and two case studies exploring the development of the foreign investment regimes and their performance over the past century in Argentina and South Korea.
Although inward foreign direct investment (FDI) has many benefits for a country as a whole, like trade, it is a source of competition for producers in the host country, with concomitant effects on labor markets. The entrance of foreign multinationals increases demand for skilled labor at the expense of unskilled labor, and also increases the elasticity of demand for labor because multinationals are able to shift production across borders. This raises the question of whether or not labor has an impact on policy toward inward FDI. I suggest that organized labor is a key determinant of the influence of labor on inward FDI restrictions. Not only do unions mitigate the collective action problem facing labor, but unionized workers, regardless of skill level, have incentives to support restrictions on inward FDI because rising elasticity of demand restricts bargaining power. I expect that higher levels of unionization will lead to greater restrictions on inward FDI. I find support for this hypothesis in an analysis of U.S. industry-level formal restrictions on inward FDI between 1981 and 2000. Industry skill intensity, a proxy for the distributional consequences of FDI for labor, does not explain variation in barriers to inward FDI, suggesting that the confluence of interests and influence is necessary for labor to influence policy.
Accurate policy evaluation is central to optimal policymaking but difficult to achieve. Most often, analysts have to work with observational data and cannot directly observe the counterfactual of a policy to assess its effect accurately. In this paper we craft a quasi-experimental design and apply two relatively new methods—the difference in differences (DID) estimation and the synthetic controls method (SCM)—to the policy debate on whether corporate tax cuts increase foreign direct investment (FDI). The taxation-FDI relationship has attracted wide attention because of mixed findings. We exploit a quasi-experimental design for Russian regions when suddenly granted autonomy to reduce corporate profit tax in 2003 enabled them to simultaneously experiment with different tax policies. We estimate both the average and local treatment effects of two types of tax cuts on FDI inflows. We find that on average, relative to no tax cut, non-discriminatory tax cuts on direct investment profit increase FDI but discriminatory tax cuts on select government-sanctioned investment projects do not. Yet for both types of tax cuts, local treatment effects vary dramatically from region to region. Our research has important implications for the design of tax policy and fiscal incentive, and the assessment of fiscal policy reforms.
Despite the central role of foreign direct investment (FDI) in global economic integration, we lack explanations for why countries restrict FDI inflows. This article analyzes the sources of FDI liberalization using a comprehensive new data set of national foreign ownership restrictions spanning over 90 countries for the period 1970–2000. Analyses of this data show that democratization contributes to greater FDI openness. Democratization elevates the political influence of labor, the primary beneficiary of unrestricted FDI inflows. Democracies restrict six percent fewer of their manufacturing and service industries as compared to nondemocracies. This finding is robust to several controls for alternate explanations including economic crises, coercion, and diffusion; alternate measures of both democracy and foreign ownership restrictions; and a variety of model specifications. This article elucidates the political economy foundations of the contemporary world economy.
Both countries and subnational governments commonly engage in competition for mobile capital, offering generous incentives to attract investment. Existing economics research has suggested that these tax incentives have a limited ability to affect investment patterns and are often excessively costly when measured against the amount of investment and jobs created. In this paper, we argue instead that the “competition” for capital can be politically beneficial to incumbent politicians. Building off work on electoral pandering, we argue that incentives allow politicians to take credit for firms' investment decisions. We test the empirical implications of this theory using a nationwide Internet survey, which employs a randomized experiment to test how voters evaluate the performance of incumbent US governors. Our findings illustrate a critical political benefit of offering such incentives. Politicians can use these incentives to take credit for investment flowing into their districts and to minimize the political fallout when investors choose to locate elsewhere.
There is general agreement that democratic institutions shape politicians’ incentives to cater to certain constituencies, but which electoral system causes politicians to be most responsive to narrow interests is still debateable. Some argue that plurality electoral rules provide the greatest incentives for politicians to cater to the interests of a few; others say proportional systems prompt politicians to be relatively more prone to narrow interests. This study suggests that both positions can be correct under different conditions. Politicians competing in plurality systems privilege voters with a shared narrow interest when such voters are geographically concentrated, but when they are geographically diffuse, such voters have greater political influence in proportional electoral systems. Government spending on subsidies in fourteen developed countries provides empirical support for this argument.
Does globalization's impact on the labor market affect how people vote? I address this question using a new dataset based on plant-level data that measures the impact of foreign competition on the U.S. workforce over an 8-year period. Analyzing change in the president's vote share, I find that voters were substantially more sensitive to the loss of local jobs when it resulted from foreign competition, particularly from offshoring, than to job losses caused by other factors. Yet, I also find that between 2000 and 2004, the anti-incumbent effect of trade-related job losses was smaller in areas where the government certified more of the harmed workers to receive special job training and income assistance. The findings have implications for understanding the impact of international economic integration on voting behavior, as well as for assessing the electoral effect of government programs designed to compensate the losers from globalization.
Who do citizens blame for the recent European economic crisis? In this paper, we test theories about blame attribution with respect to the economic crisis. We argue that blame for the crisis is partially conditioned by partisan bias and fra- mings of the crisis as being related to globalization. We test the argument with new survey data and a survey experiment from Spain. In the experiment, respondents receive different framings of the economic crisis which are endorsed by dif- ferent political parties and non-partisan organizations. We obtain the following findings: (i) blame for who is responsible for the economic crisis is greatly affected by partisanship; (ii) making globalization as a cause of the crisis salient exoner- ates the government of blame, but only for co-partisans of the government; and (iii) citizens are willing to blame other globalization-related factors for the crisis, in particular, European governments and blame the domestic government less. The results expand our understanding of public opinion dynamics during major economic recessions and also suggest conditions under which “scapegoating” globalization can occur.
The economics and elections connection has been heavily investigated, although mostly through single-country studies. The first comparative, survey-based research on economic voting, by Lewis–Beck, found serious effects. Subsequently, other comparative scholars have explored this terrain. The most recent, and most ambitious, examinations are by Duch and Stevenson and by van der Brug et al. These impressive efforts arrive at opposing conclusions about the importance of economic voting. We carry out another major examination, with an eye to reconciling these differences. A carefully specified model of vote choice is estimated on a balanced survey pool (N > 40,000) from 10 Western European nations. Special pains are taken with issues of economic measurement, estimation, and endogeneity. The finding is that economic perceptions are formed from economic reality, and importantly influence vote choice. Besides enhancing our understanding of comparative political behavior, the strong result speaks to the functioning of government accountability in advanced democracies.
Labor turnover is a commonly-cited mechanism for the transmission of technology from multinational to domestic firms. Using a matched establishment-worker database from Brazil, I present evidence consistent with positive multinational wage spillovers through worker mobility. When workers leave multinationals and are rehired at domestic establishments, continuing workers' wages increase. To my knowledge, this avenue for wage spillovers has not previously been explored. The paper also investigates where spillovers occur and how they are absorbed to demonstrate heterogeneous impacts. Higherskilled former multinational workers are better able to transfer information and higher-skilled incumbent domestic workers are better able to absorb information.JEL Classification: F16, F23, J3, J6.