1932

Abstract

This article reviews scholarly research on the political economy of foreign direct investment (FDI) over the past 20 years. FDI research during this period reflects FDI's rapid growth, particularly in developing countries, and the emergence of intense competition among countries to attract investments. Countries have grown more open to FDI as evidenced by FDI deregulation, generous financial investment incentives, and the adoption of international agreements. Although extensive research shows that multinational corporations prefer to invest in countries with strong property rights protections, whether incentives and international agreements help countries attract FDI remains contested. Scholars can advance research by disaggregating FDI into multinational firms' specific production activities because the scope for countries to compete for FDI and firms' sensitivity to property rights vary widely. More generally, scholars should recast the separate study of trade and FDI into the study of global production in which trade and FDI are inextricably linked.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-polisci-051214-101237
2016-05-11
2024-04-21
Loading full text...

Full text loading...

/deliver/fulltext/polisci/19/1/annurev-polisci-051214-101237.html?itemId=/content/journals/10.1146/annurev-polisci-051214-101237&mimeType=html&fmt=ahah

Literature Cited

  1. Aisbett E. 2009. Bilateral investment treaties and foreign direct investment: correlation versus causation. The Effect of Treaties on Foreign Direct Investment K Sauvant, L Sachs 395–436 Oxford, UK: Oxford Univ. Press [Google Scholar]
  2. Aizenman J. 2005. Opposition to FDI and financial shocks. J. Dev. Econ. 77:2467–76 [Google Scholar]
  3. Alfaro L, Chen MX. 2012. Surviving the global financial crisis: foreign ownership and establishment performance. Am. Econ. J. Econ. Polit. 4:330–55 [Google Scholar]
  4. Allee T, Peinhardt C. 2011. Contingent credibility: the impact of investment treaty violations on foreign direct investment. Int. Organ. 65:3401–32 [Google Scholar]
  5. Allee T, Peinhardt C. 2014. Evaluating three explanations for the design of bilateral investment treaties. World Polit. 66:0147–87 [Google Scholar]
  6. Asiedu E, Jin Y, Nandwa B. 2009. Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?. J. Int. Econ. 78:2268–75 [Google Scholar]
  7. Baccini L, Dür A. 2015. Investment discrimination and the proliferation of preferential trade agreements. J. Confl. Resolut. 59:4617–44 [Google Scholar]
  8. Baccini L, Li Q, Mirkina I. 2014. Corporate tax cuts and foreign direct investment. J. Policy Anal. Manage. 33:4977–1006 [Google Scholar]
  9. Bhagwati JN, Brecher RA, Dinopoulos E, Srinivasan TN. 1987. Quid pro quo foreign investment and welfare: a political-economy-theoretic model. J. Dev. Econ. 27:1127–38 [Google Scholar]
  10. Bernard AB, Jensen JB, Schott PK. 2009. Importers, exporters and multinationals: a portrait of firms in the U.S. that trade goods. Producer Dynamics: New Evidence from Micro Data T Dunne, JB Jensen, MJ Roberts 513–56 Chicago: Univ. Chicago Press [Google Scholar]
  11. Bernard AB, Jensen JB, Redding SJ, Schott PK. 2012. The empirics of firm heterogeneity and international trade. Annu. Rev. Econ. 4:283–313 [Google Scholar]
  12. Beugelsdijk S, Hennart JF, Slangen A, Smeets R. 2010. Why and how FDI stocks are a biased measure of MNE affiliate activity. J. Int. Bus. Stud. 41:91444–59 [Google Scholar]
  13. Biglaiser G, DeRouen K. 2010. The effects of IMF programs on U.S. foreign direct investment in the developing world. Rev. Int. Organ. 5:173–95 [Google Scholar]
  14. Blake DJ. 2013. Thinking ahead: government time horizons and the legalization of international investment agreements. Int. Organ. 67:4797–827 [Google Scholar]
  15. Blanton SL, Blanton RG. 2007. What attracts foreign investors? An examination of human rights and foreign direct investment. J. Polit. 69:1143–55 [Google Scholar]
  16. Büthe T, Milner HV. 2008. The politics of foreign direct investment into developing countries: increasing FDI through international trade agreements?. Am. J. Polit. Sci. 52:4741–62 [Google Scholar]
  17. Büthe T, Milner HV. 2014. Foreign direct investment and institutional diversity in trade agreements: credibility, commitment, and economic flows in the developing world, 1971–2007. World Polit. 66:0188–122 [Google Scholar]
  18. Chase K. 2003. Economic interests and regional trading arrangements: the case of NAFTA. Int. Organ. 57:1137–74 [Google Scholar]
  19. Crystal J. 1998. A new kind of competition: how American producers respond to incoming foreign direct investment. Int. Stud. Q. 42:513–43 [Google Scholar]
  20. Domínguez JI. 1982. Business nationalism: Latin American national business attitudes and behavior toward mulitnational enterprises. Economic Issues and Political Conflict: US–Latin American Relations JI Dominguez 16–68 London: Butterworth Sci. [Google Scholar]
  21. Elkins Z, Guzman AT, Simmons BA. 2006. Competing for capital: the diffusion of bilateral investment treaties, 1960–2000. Int. Organ. 60:4811–46 [Google Scholar]
  22. Evans PB. 1979. Dependent Development: The Alliance of Multinational, State, and Local Capital in Brazil Princeton, NJ: Princeton Univ. Press
  23. Frieden JA. 1994. International investment and colonial control: a reinterpretation. Int. Organ. 48:4559–93 [Google Scholar]
  24. Goodman JB, Spar D, Yoffie DB. 1996. Foreign direct investment and the demand for protection in the United States. Int. Organ. 50:4565–91 [Google Scholar]
  25. Graham EM, Marchick DM. 2006. US National Security and Foreign Direct Investment Washington, DC: Inst. Int. Econ.
  26. Grossman GM, Helpman E. 1996. Foreign investment with endogenous protection. The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati RC Feenstra, GM Grossman, DA Irwin 199–224 Cambridge, MA: MIT Press [Google Scholar]
  27. Haftel YZ. 2010. Ratification counts: US investment treaties and FDI flows into developing countries. Rev. Int. Polit. Econ. 17:2348–77 [Google Scholar]
  28. Haftel YZ, Thompson A. 2013. Delayed ratification: the domestic fate of bilateral investment treaties. Int. Organ. 67:2355–87 [Google Scholar]
  29. Hajzler C. 2012. Expropriation of foreign direct investments: sectoral patterns from 1993 to 2006. Rev. World Econ. 148:1119–49 [Google Scholar]
  30. Hallward-Driemeier M. 2003. Do bilateral investment treaties attract FDI? Only a bit…and they could bite World Bank Work. Pap. No. 3121
  31. Helpman E, Melitz MJ, Yeaple SR. 2004. Export versus FDI with heterogeneous firms. Am. Econ. Rev. 94:1300–16 [Google Scholar]
  32. Henisz W. 2000. The institutional environment for multinational investment. J. Law Econ. Organ. 16:2334–64 [Google Scholar]
  33. Henisz W. 2002. Politics and International Investment: Measuring Risks and Protecting Profits Cheltham, UK: Edward Elgar
  34. International Monetary Fund 2009. Balance of Payments and International Investment Position Manual. Washington, DC: Int. Monet. Fund, 6th ed..
  35. Jandhyala S, Henisz WJ, Mansfield ED. 2011. Three waves of BITs: the global diffusion of foreign investment policy. J. Confl. Resolut. 55:61047–73 [Google Scholar]
  36. Jensen JB, Quinn DP, Weymouth S. 2013. Global supply chains, currency undervaluation, and firm protectionist demands. NBER Work. Pap. No. 19239
  37. Jensen NM. 2003. Democratic governance and multinational corporations: political regimes and inflows of foreign direct investment. Int. Organ. 57:3587–616 [Google Scholar]
  38. Jensen NM. 2004. Crisis, conditions, and capital: the effect of international monetary fund agreements on foreign direct investment inflows. J. Confl. Resolut. 48:2194–210 [Google Scholar]
  39. Jensen NM. 2006. Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment Princeton, NJ: Princeton Univ. Press
  40. Jensen NM. 2008. Political risk, democratic institutions, and foreign direct investment. J. Polit. 70:41040–52 [Google Scholar]
  41. Jensen NM. 2012. Fiscal policy and the firm: Do low corporate tax rates attract multinational corporations?. Comp. Polit. Stud. 45:81004–26 [Google Scholar]
  42. Jensen NM. 2013. Domestic institutions and the taxing of multinational corporations. Int. Stud. Q. 57:3440–48 [Google Scholar]
  43. Jensen NM, Malesky E, Medina M, Ozdemir U. 2014. Pass the bucks: credit, blame, and the global competition for investment. Int. Stud. Q. 58:3433–47 [Google Scholar]
  44. Johns L, Wellhausen RL. 2015. Under one roof: supply chains and the protection of foreign investment. Unpublished manuscript
  45. Kang CSE. 1997. U.S. politics and greater regulation of inward foreign direct investment. Int. Organ. 51:2301–33 [Google Scholar]
  46. Kerner A. 2009. Why should I believe you? The costs and consequences of bilateral investment treaties. Int. Stud. Q. 53:173–102 [Google Scholar]
  47. Kerner A. 2014. What we talk about when we talk about foreign direct investment. Int. Stud. Q 58:4804–81 [Google Scholar]
  48. Kerner A, Lawrence J. 2014. What's the risk? Bilateral investment treaties, political risk and fixed capital accumulation. Br. J. Polit. Sci. 44:1107–21 [Google Scholar]
  49. Kim IS. 2013. Political cleavages within industry: firm level lobbying for trade liberalization Unpublished manuscript
  50. Kobrin SJ. 1987. Testing the bargaining hypothesis in the manufacturing sector in developing countries. Int. Organ. 41:4609–38 [Google Scholar]
  51. Leblang D. 2010. Familiarity breeds investment: diaspora networks and international investment. Am. Polit. Sci. Rev. 104:3584–600 [Google Scholar]
  52. Li Q. 2006. Democracy, autocracy, and tax incentives to foreign direct investors: a cross-national analysis. J. Polit. 68:162–74 [Google Scholar]
  53. Li Q. 2009. Democracy, autocracy, and expropriation of foreign direct investment. Comp. Polit. Stud. 42:81098–127 [Google Scholar]
  54. Li Q, Resnick A. 2003. Reversal of fortunes: democracy, property rights and foreign direct investment inflows to developing countries. Int. Organ. 57:1175–211 [Google Scholar]
  55. Li Q, Vashchilko T. 2010. Dyadic military conflict, security alliances, and bilateral FDI flows. J. Int. Bus. Stud. 41:5765–82 [Google Scholar]
  56. Manger MS. 2009. Investing in Protection. Cambridge, UK: Cambridge Univ. Press
  57. Manger MS. 2012. Vertical trade specialization and the formation of North–South PTAs. World Polit. 64:04622–58 [Google Scholar]
  58. Melitz MJ. 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71:61695–725 [Google Scholar]
  59. Meunier S. 2014. ‘Beggars can't be choosers’: the European crisis and Chinese direct investment in the European Union. J. Eur. Integr. 36:3283–302 [Google Scholar]
  60. Meunier S, Burgoon B, Jacoby W. 2014. The politics of hosting Chinese investment in Europe—an introduction. Asia Eur. J. 12:1–2109–26 [Google Scholar]
  61. Milner H. 1988. Trading places: industries for free trade. World Polit. 40:3350–76 [Google Scholar]
  62. Milner HV. 2014. Introduction: the global economy, FDI, and the regime for investment. World Polit. 66:11–11 [Google Scholar]
  63. Neumayer E, Spess L. 2005. Do bilateral investment treaties increase foreign direct investment to developing countries?. World Dev. 33:101567–85 [Google Scholar]
  64. Oman C. 2000. Policy Competition for Foreign Direct Investment: A Study of Competition among Governments to Attract FDI Paris: OECD Publ.
  65. Oneal JR. 1994. The affinity of foreign investors for authoritarian regimes. Polit. Res. Q. 47:3565–88 [Google Scholar]
  66. Owen E. 2013. Unionization and restrictions on foreign direct investment. Int. Interact. 39:5723–47 [Google Scholar]
  67. Owen E. 2015. The political power of organized labor and the politics of foreign direct investment in developed economies. Comp. Polit. Stud. 48:131746–80 [Google Scholar]
  68. Pandya SS. 2010. Labor markets and the demand for foreign direct investment. Int. Organ. 64:3389–409 [Google Scholar]
  69. Pandya SS. 2014. Trading Spaces Cambridge, UK: Cambridge Univ. Press
  70. Peinhardt C, Allee T. 2012. Failure to deliver: the investment effects of US preferential economic agreements. World Econ. 35:6757–83 [Google Scholar]
  71. Pinto PM. 2013. Partisan Investment in the Global Economy Cambridge, UK: Cambridge Univ. Press
  72. Pinto PM, Pinto SM. 2008. The politics of investment partisanship and the sectoral allocation of foreign direct investment. Econ. Polit. 20:2216–54 [Google Scholar]
  73. Poulsen LNS, Aisbett E. 2013. When the claim hits: bilateral investment treaties and bounded rational learning. World Polit. 65:2273–313 [Google Scholar]
  74. Romer P. 1993. Idea gaps and object gaps in economic development. J. Monet. Econ. 32:3543–73 [Google Scholar]
  75. Scheve K, Slaughter MJ. 2004. Economic insecurity and the globalization of production. Am. J. Polit. Sci. 48:4662–74 [Google Scholar]
  76. Simmons BA. 2014. Bargaining over BITs, arbitrating awards: the regime for protection and promotion of international investment. World Polit. 66:0112–46 [Google Scholar]
  77. Staats JL, Biglaiser G. 2012. Foreign direct investment in Latin America: the importance of judicial strength and rule of law. Int. Stud. Q. 56:1193–202 [Google Scholar]
  78. Tingley D, Xu C, Chilton A, Milner H. 2015. The political economy of inward FDI: opposition to Chinese mergers and acquisitions. Chinese J. Int. Rel. 8:125–57 [Google Scholar]
  79. Tobin JL, Busch ML. 2010. A BIT is better than a lot: bilateral investment treaties and preferential trade agreements. World Polit. 62:011–42 [Google Scholar]
  80. Tobin JL, Rose-Ackerman S. 2011. When BITs have some bite: the political-economic environment for bilateral investment treaties. Rev. Int. Organ. 6:11–32 [Google Scholar]
  81. UNCTAD 2012. World Investment Report 2012 Geneva: United Nations
  82. UNCTAD 2015. World Investment Report 2015 Geneva: United Nations
  83. Vernon R. 1971. Sovereignty at Bay New York: Basic Books
  84. Wellhausen RL. 2015a. Investor–state disputes: When can governments break contracts?. J. Confl. Resolut. 59:2239–61 [Google Scholar]
  85. Wellhausen RL. 2015b. The Shield of Nationality Cambridge, UK: Cambridge Univ. Press
  86. Yi K-M. 2003. Can vertical specialization explain the growth of world trade?. J. Polit. Econ. 111:152–102 [Google Scholar]
  87. Ye M. 2014. Diasporas and Foreign Direct Investment in China and India Cambridge, UK: Cambridge Univ. Press
/content/journals/10.1146/annurev-polisci-051214-101237
Loading
/content/journals/10.1146/annurev-polisci-051214-101237
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error