Abstract/Details

Trading spaces: The political economy of foreign direct investment regulation


2008 2008

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Abstract (summary)

Foreign direct investment (FDI) is the single largest source of international capital flows. A standard claim is that FDI gives rise to a "race to the bottom": countries compete for FDI by dismantling regulatory standards to entice foreign firms with the prospect of lower production costs. But, this standard account cannot make sense of one simple fact: governments often restrict FDI inflows into their countries, sometimes quite extensively. The divergence between conventional wisdom and this fact constitutes a startling gap in our understanding of the politics of international economic integration.

In order to explain this contradiction I develop and test a theory of FDI regulation. This theory consists of two parts: a model of FDI's distributional effects and a political model of FDI policy-making. The key insight regarding distributional effects is that FDI designed to compete in product markets reduces the income of both labor and capital owners, making it more likely to be regulated. By contrast, FDI designed to exploit lower productions costs creates new jobs and has few negative repercussions. Analysis of individual preferences for FDI policies, a testable implication of the model, provide confirmation. Using public opinion data from Mexico I show that preferences for FDI inflows are consistent with expected income effects.

I compile a new database of FDI regulation to test the full model that covers 150 countries, 57 industry categories, and eleven types of FDI regulation from 1962 to 2000. An in-depth analysis of regulation in the 1990s demonstrates that countries are more likely to restrict FDI into industries in which foreign firms are in competition with local producers. Specifically, there is nine percentage point negative difference in the expected probability of FDI regulation across the range of product competition. I also find a twenty percentage point negative difference in the expected probability of FDI regulation between the least democratic and most democratic countries in the sample. Politicians in democracies are less likely to regulate FDI inflows because, ceteris paribus, they privilege the interests of consumers over producers. These findings are robust to a variety of controls for alternate possible sources of FDI regulation.

Indexing (details)


Subject
Economics;
Political science;
International law;
Foreign investment
Classification
0501: Economics
0615: Political science
0616: International law
Identifier / keyword
Social sciences; Foreign direct investment; Globalization; International political economy; Multinational corporations; Multinational corporations (MNCs); Political economy; Political economy of development; Regulation
Title
Trading spaces: The political economy of foreign direct investment regulation
Author
Pandya, Sonal Sharadkumar
Number of pages
167
Publication year
2008
Degree date
2008
School code
0084
Source
DAI-A 69/01, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
ISBN
9780549408956
Advisor
Frieden, Jeffry
University/institution
Harvard University
University location
United States -- Massachusetts
Degree
Ph.D.
Source type
Dissertations & Theses
Language
English
Document type
Dissertation/Thesis
Dissertation/thesis number
3295932
ProQuest document ID
304599467
Copyright
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
http://search.proquest.com/docview/304599467
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