Political visits and foreign direct investment

Institutionalists agree that multinational enterprises (MNEs) can increase their adaptability to political risk and uncertainty and improve firm performance in foreign locations utilizing political capabilities developed in their home country. However, surprisingly little attention has been paid to the ways in which host governments incentivize foreign investment by boosting MNEs’ political capabilities. Based on the data on foreign political leaders’ visits made to South Korea (hereafter Korea) and Korean outward foreign direct investment (OFDI) to their countries (2013–2021), we examine how inward political visits serve as a strategic instrument that promotes OFDI. We also explore whether institutional distance moderates the impacts of political visits and how the impacts differ by political power of the host country relative to that of the home country and by political leader tenure left in the countries involved. Our findings show that inward political visits increase the amount of OFDI to the visiting countries but that institutional distance serves as a negative moderator. We also find evidence that political visits have a greater positive impact on OFDI when the visiting country holds less political power than a partner country and when political leaders have longer tenure left in both countries. Our study contributes to literatures on the precedents of FDI and the roles of nonmarket factors (i.e., governmental initiatives) in internationalization.