Political affinity, multilateralism, and foreign direct investment worldwide

Wenlian Lin, Jerry Cao, Sili Zhou and Yong Li

Journal of International Financial Markets, Institutions and Money, 2024, vol. 94, issue C

Abstract: We investigate the relationship between political affinity and foreign direct investment (FDI) from the perspective of bilateral relations extending to multilateralism. The bilateral analysis shows that a host country can attract more FDI from a home country with which it has high political affinity. Furthermore, we shed new light on the role of multilateralism and find that multilateral diplomacy helps mitigate the effect of bilateral political affinity on FDI through dialog and consultation based on common interests. Finally, we show that a host country’s institutional quality moderates the relationship between political affinity and FDI. Our analysis highlights the importance of multilateralism in the era of political polarization and deglobalization, which threaten the development of international investment.

Keywords: Foreign direct investment; Political affinity; Multilateralism; Globalization (search for similar items in EconPapers)
JEL-codes: F21 F53 F59 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:94:y:2024:i:c:s1042443124000908

DOI: 10.1016/j.intfin.2024.102024

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