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"Electoral Politics and Foreign Project Investment in Developing Countries"

Paul M. Vaaler


First Author :

Paul M. Vaaler
Business Administration
University of Illinois at Urbana-Champaign, College of Business
1206 S. Sixth Street
350 Wohlers Hall, MC 706
Champaign, IL 61820

217-244-7969 (Fax)

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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.
Keywords :
decision-making, emerging economies, political risk
Footnotes & Acknowledgements :
I thank Ruth Aguilera, Bill Bernhard, Steve Block, Hadi Esfahani, Glenn Hoetker, Joe Mahoney, Gerry McNamara, Steve Michael, Mike Peng, Michael Preis, Burkhard Schrage and Mike Sher for helpful comments, criticisms and suggestions. I thank Ben Esty, Barclay James, Shawn Riley and Burkhard Schrage for help with data collection. I also thank Randy Westgren and the UIUC Center for International Business Education and Research for generous financial support. Earlier versions of this research benefited from presentation and feedback from participants at the UIUC International and Development Economics Workshop and the Academy of Management Annual Meetings in Atlanta. All remaining errors are mine.
Manuscript Received : 2006
Manuscript Published : December 22, 2006
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