Publication

This paper examines whether domestic political checks and balances and international legal instruments that aim to protect FDI enable governments to credibly commit to avoid future policies that diminish the value of sunk FDI. Utilizing a dataset on the level of foreign activity by majority-owned US manufacturing affiliates on a country and industry basis between 1982 and 1998, the author finds no evidence that either mechanism encourages inward FDI. The paper explains that socio-political stability and centrist, technocratic governments however are able to positively contribute to good economic conditions for foreign investors.