Electoral Politics and Foreign Project Investment in Developing Countries

Paul Vaaler ()

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: Research on multinational corporations ("MNCs") and host government political risk in developing countries has largely ignored local electoral politics, economic policies and the MNC investment incentives they may generate. In response, we develop and test a model of MNC risk and investment based on political business cycle considerations. Analyses of 408 MNC investments worth $199 billion in 18 developing countries holding 35 presidential elections from 1987-2000 support the model and indicate that MNCs perceive higher (lower) risk in the form of fewer (more) investment project announcements as right-wing (left-wing) incumbents appear more likely to be replaced by left-wing (right-wing) challengers.

Date: 2006-12
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