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Politics and Foreign Direct Investment

Politics and Foreign Direct Investment

Nathan M. Jensen
Glen Biglaiser
Quan Li
Edmund Malesky
Pablo M. Pinto
Santiago M. Pinto
Joseph L. Staats
Copyright Date: 2012
Pages: 211
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  • Book Info
    Politics and Foreign Direct Investment
    Book Description:

    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.

    eISBN: 978-0-472-02837-5
    Subjects: Political Science
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Table of Contents

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  1. Front Matter (pp. i-iv)
  2. Table of Contents (pp. v-vi)
  3. Preface and Acknowledgments (pp. vii-viii)
  4. CHAPTER 1 Introduction: Multinational Corporations and Governments (pp. 1-26)

    A MULTINATIONAL CORPORATION (MNC) organizes production of goods and services in more than one country, involving the transfer of assets or intermediate products within the investing enterprise and without any change in ownership.¹ Foreign direct investment (FDI) by an MNC is the purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control. International production through MNCs and FDI has been increasing in volume and expanding in scope. It is widely viewed as one of the most salient aspects of globalization.

    For the first four decades...

  5. CHAPTER 2 Democracy and the Political Risk of Expropriation for International Business (pp. 27-52)

    AS OUTLINED IN CHAPTER 1, political risk is a central concern for foreign direct investors, especially when they invest in developing countries. Many scholars in international business, economics, and political science have employed some type of composite indicator of political instability or risk to assess the impact of political risk on international business.¹ At the same time, many other scholars attempting to understand the determinants of foreign direct investment have found that political institutions in-fluence investment and entry-mode decisions of international businesses by shaping investor perception of political risk in the host environment.² Very rarely, though, do those investigating FDI...

  6. CHAPTER 3 Institutional Determinants of Foreign Direct Investment in the Developing World (pp. 53-82)

    THE PAST TWO DECADES have seen a revival of both democracy and foreign direct investment in the developing world. The similar time frame has led many political economy scholars to argue that simultaneous political reform and growth of foreign investment are no mere coincidence and that democratization actually promotes increased FDI in the developing world.¹ Beyond minimal notions of what it takes to be a democracy, there is also an argument that effective courts and adherence to the rule of law promote a climate conducive to domestic and foreign investment.²

    In the previous chapter, we examined how democratic institutions affect...

  7. CHAPTER 4 Partisan Governments and the Distributive Effects of Foreign Direct Investment (pp. 83-114)

    CONTINUING WITH THE ARGUMENT that political institutions and politics affect foreign investment, we present, in this chapter, a political economy explanation of the causes and consequences of foreign direct investment, focusing on the expected distributive effects of direct investment flows. The empirical literature reports that the consequences of FDI are likely to vary in different economic and political environments. The framework presented here, which builds on the work of Pinto and Pinto (2008), aims at explaining this dynamic.

    Ample anecdotal evidence from OECD countries identifies an association between the orientation of the ruling coalition and the pattern of allocation of...

  8. CHAPTER 5 Political Institutions and the Effectiveness of Multinational Lobbying (pp. 115-146)

    THE EARLY CHAPTERS of this book were devoted to analyzing how particular constellations of political institutions and politics affect the flows of foreign direct investment. Certainly, investors are astute observers of political risk and take into account a diverse range of past, present, and expected future political factors before committing to a particular project. While analyzing foreign investment from this perspective is important to understanding FDI, doing so leaves part of the story untold. As we explained in chapter 1, political institutions and politics influence investment decisions, but they do not wholly determine them. There are times when the economic...

  9. CHAPTER 6 Conclusion (pp. 147-156)

    WE HAVE ATTEMPTED in this book to solve a puzzle that has vexed academics and policy makers for what sometimes seems forever: what is it that allows some countries to attract foreign investment at high levels and yet prevents others from doing so? Many argue that politics matters, and we demonstrate in this work that this is surely the case. We do more than that, however—we also demonstratehowpolitics matters. In this concluding chapter, we sketch our contribution to understanding the complex relationship between politics and multinational enterprises.

    One overarching theme of our book is that political institutions...

  10. Notes (pp. 157-172)
  11. References (pp. 173-200)
  12. Index (pp. 201-211)