Economic elite competition and FDI inflows in nondemocratic states

Chase Englund ()
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Chase Englund: US Dept. of Treasury

International Economics and Economic Policy, 2025, vol. 22, issue 1, No 23, 29 pages

Abstract: Abstract Influential economic actors can have a significant impact on the decision-making of political leaders in nondemocratic contexts, particularly on economic policy matters. However, the relationship between economic elites and economic outcomes in nondemocratic states has received limited treatment in existing literature. This paper seeks to examine the relationship between economic elite competition and foreign direct investment inflows in nondemocratic contexts. I argue that when there are a greater number of economic elites in a state, competition to influence public policy increases. In nondemocratic states, this increase in competition over policy creates greater policy uncertainty in a context where weak legal protections amplify investors’ exposure to policy changes. As a result, increased competition over the reins of policy results in more negative sentiment about the investment environment and lower FDI inflows to the state. I also argue that these effects are amplified when dissatisfied economic elites are able to channel their demands for policy change through existing political opposition, making the combination of more economic elites and increased political competition particularly damaging to investment interest in nondemocratic contexts. Using economic data taken from the World Federation of Exchanges across 33 nondemocratic states from 1980 to 2020, I find that increased elite competition is associated with lower levels of FDI inflows in nondemocratic states, and the size of the negative marginal effect of this variable is increased by the concurrent presence of political competition.

Keywords: Political economy; Economic elites; Elite competition; Political risk; Foreign direct investment (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10368-024-00646-4

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