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Foreign Direct Investment and the Robustness of Host-Country Commitment

Author

Listed:
  • Shaikh Shahnawaz

    (California State University)

Abstract

"This paper presents a model of a forward-looking government wooing foreign direct investment by enacting policies that reflect its commitment to the foreign enterprise. The ease with which the government is able to spend or carry out economic reform to complement the foreign venture evolves over time and influences the likelihood of its sustained commitment. The domestic and external strength of the government, the stability and not necessarily the level of returns from the project, venture-specificity of government spending or reform, and public and elite attitudes toward foreign commercial entry determine how invested the government remains in the long term success of the enterprise. More committed governments tend to be stronger and prefer robust investor-regime relationships. Reform that is not designed too narrowly to favor the investor is also less likely to be reversed later. Like pro-FDI public sentiment, a noisy policy environment induces deeper government commitment."

Suggested Citation

  • Shaikh Shahnawaz, 2022. "Foreign Direct Investment and the Robustness of Host-Country Commitment," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 14(3), pages 441-469, October.
    • Handle: RePEc:ren:journl:v:14:y:2022:i:3:p:441-469
    DOI: https://doi.org/10.15353/rea.v14i1.3582
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    More about this item

    Keywords

    FDI; Policy reform; Strength of government;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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