Be my guest: the effect of foreign policy visits to the USA on FDI

Antonis Adam and Sofia Tsarsitalidou

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We examine whether a country leader’s diplomatic visit to the USA affects the Foreign Direct Investment inflow. The literature so far has found inconclusive results regarding diplomatic relations' effect on international flows. We use a dynamic Inverse Probability Weighting Regression Adjustment framework to examine this relationship and estimate the causal effect of foreign visits. Our results indicate that a visit to the US increases the country’s total FDI inflows by up to one percentage point per annum, with a cumulative effect reaching 2.5 percentage points six years after the visit. However, this is a short-run effect as it disappears in the subsequent years. Furthermore, our first-stage results shed light on the profile of the leaders that visit the US. Our findings are consistent with the view that foreign visits act as signals to investors regarding the country’s political risk.

Keywords: FDI; foreign visits; inverse probability weighting (search for similar items in EconPapers)
JEL-codes: F21 H80 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2024-05-31
New Economics Papers: this item is included in nep-ifn, nep-int and nep-mfd
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Published in Review of World Economics, 31, May, 2024, 160(2), pp. 455 – 480. ISSN: 1610-2878

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http://eprints.lse.ac.uk/119368/ Open access version. (application/pdf)

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Journal Article: Be my guest: the effect of foreign policy visits to the USA on FDI (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119368

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