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Electoral Politics and Foreign Project Investment in Developing Countries

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  • Vaaler, Paul M.

    (U of Illinois at Urbana-Champaign)

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.

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File URL: http://www.business.illinois.edu/Working_Papers/papers/06-0125.pdf
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Bibliographic Info

Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 06-0125.

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Date of creation: Dec 2006
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Handle: RePEc:ecl:illbus:06-0125

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Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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  1. Block, Steven A. & Vaaler, Paul M., 2004. "The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries," Journal of International Money and Finance, Elsevier, vol. 23(6), pages 917-946, October.
  2. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  3. Paul M. Vaaler & Burkhard N. Schrage & Steven A. Block, 2006. "Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 154-170, 02.
  4. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  5. Benjamin C. Esty, 2004. "Why Study Large Projects? An Introduction to Research on Project Finance," European Financial Management, European Financial Management Association, vol. 10(2), pages 213-224.
  6. Paul M Vaaler & Burkhard N Schrage & Steven A Block, 2005. "Counting the investor vote: political business cycle effects on sovereign bond spreads in developing countries," Journal of International Business Studies, Palgrave Macmillan, vol. 36(1), pages 62-88, January.
  7. Steven A. Block & Karen E. Ferree & Smita Singh, 2003. "Multiparty Competition, Founding Elections and Political Business Cycles in Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(3), pages 444-468, September.
  8. Henisz, Witold J, 2000. "The Institutional Environment for Multinational Investment," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 334-64, October.
  9. Kobrin, Stephen J., 1987. "Testing the bargaining hypothesis in the manufacturing sector in developing countries," International Organization, Cambridge University Press, vol. 41(04), pages 609-638, September.
  10. Murtha, Thomas P., 1993. "Credible enticements : Can host governments tailor multinational firms' organizations to suit national objectives?," Journal of Economic Behavior & Organization, Elsevier, vol. 20(2), pages 171-186, February.
  11. Richard Cantor & Frank Packer, 1996. "Determinants and impact of sovereign credit ratings," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 37-53.
  12. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
  13. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
  14. Block, Steven A., 2002. "Political business cycles, democratization, and economic reform: the case of Africa," Journal of Development Economics, Elsevier, vol. 67(1), pages 205-228, February.
  15. Beck, Thorsten & Clarke, George & Groff, Alberto & Keefer, Philip & Walsh, Patrick, 2000. "New tools and new tests in comparative political economy - the database of political institutions," Policy Research Working Paper Series 2283, The World Bank.
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