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“Complex Dependence in Foreign Direct Investment: Network Theory and Empirical Analysis” (Conditionally Accepted, Political Science Research and Methods, with John Schoeneman & Bruce Desmarais)

Abstract: We develop a theoretical framework that accounts for complex dependence in foreign direct investment (FDI) relationships. Conventional theories of FDI focus on firm-, industry-, country-, or dyad-level characteristics to account for cross-border capital movements. Yet, today’s globalized economy is characterized by the increasing fragmentation and dispersion of production processes, which gives rise to complex dependence among production relationships. Consequently, FDI flows should be represented and theorized as a network. Specifically, we argue that FDI relationships are reciprocal and transitive. We test these hypotheses along with conventional covariate determinants of FDI using an exponential random graph model (ERGM) for weighted networks. We find that FDI networks exhibit strong reciprocity and transitivity. Our network approach to studying FDI provides new insights into cross-border investment flows and their political and economic consequences, and more generally the dynamics of globalization. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.

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2019. “Greasing the Wheels of Commerce? Corruption and Foreign Investment.” The Journal of Politics   81(4): 1311–1327 (with Weiyi Shi).

Abstract: There are considerable scholarly debates regarding the real consequences of corruption. Recent studies have argued that predictable corruption, in which bribers are guaranteed the delivery of government services, is less distortionary and more efficiency-enhancing than arbitrary corruption in which officials engage in simple plunder. Yet, the empirical evidence is mixed. Leveraging a vignette experiment embedded in an original firm survey in China, we find that overseas investors always consider corruption detrimental. There is some evidence that high productivity and fixed-asset intensive investors might view predictable corruption more favorably than arbitrary corruption. Additionally, we find that compared to arbitrary corruption, predictable corruption is not associated with a significantly higher probability of market entry, but it increases the likelihood of majority ownership. Overall, the results provide little evidence that corruption “greases the wheels of commerce” even in a most likely case, and suggest that the perceived benefits of predictable corruption are limited.

Paper     Appendix     Replication Materials    SSRN

2018. “Monopoly Rents and Foreign Direct Investment in Fixed Assets.” International Studies Quarterly 62(2): 341–356 (with Joseph Wright).

Abstract: In the past two decades, much of foreign direct investment (FDI) in the primary sector has flowed to unconventional, politically risky destinations. This presents a puzzle for theories that emphasize the ex post immobility of—and hence high potential expropriation risk for—fixed asset investment. Existing theories overlook one critical aspect of fixed assets: large capital requirements and high sunk costs act as entry barriers, resulting in market concentration and strong firm incentive for monopoly rent extraction. Personalist dictatorships, we posit, provide an attractive institutional environment for fixed asset investors because the lack of institutional constraints and leaders’ families’ control of key economic sectors facilitate rent-seeking activities. We find that personalist dictatorships have significantly more foreign investment in the primary sector, and fixed-asset intensive industries in general, than other regimes. This study highlights the importance of accounting for heterogeneity among investors and political regimes to understand the politics of FDI.

Paper     Appendix     Replication Materials     SSRN

Media Coverage: Penn State Today, Market Business News

2018. “The Face of Internet Recruitment: Evaluating the Labor Markets of Online Crowdsourcing Platforms in China.” Research & Politics 5(1): 1–8 (with Xiaojun Li & Weiyi Shi).

Abstract: Zhubajie/Witmart and other online crowdsourcing platforms have proliferated in China and researchers have increasingly used them for subject recruitment. One critical question remains, however: what is the generalizability of the findings based on these online samples?  In this study, we benchmark the demography of an online sample from Zhubajie to nationally representative samples and replicate commonly asked questions in national surveys. We find that online respondents differ from the general population in many respects. Yet, the differences become smaller when comparison is made with the internet users in benchmark surveys. Importantly, when predicting attitudes, our online sample is able to produce similar coefficients in most cases as these internet-active subsamples. Our study suggests that online crowdsourcing platforms can be a useful tool for subject recruitment, especially when researchers are interested in making inferences about Chinese netizens. We also analyze the political and social desirability issues, and we discuss caveats..

Paper     Appendix    Replication Materials     SSRN

2017. “MNCs, Rents, and Corruption: Evidence from China.” American Journal of Political Science 61(1): 84–99.

Abstract: How does multinational corporation (MNC) activity affect corruption in developing countries? The existing literature tends to suggest that economic integration helps reduce corruption as it increases market competition and efficiency and promotes the diffusion of good governance. In this paper, I argue that such a generalization oversimplifies the consequences of MNC activity in host countries. Entry and presence of MNCs may contribute to rent creation in developing countries, thereby leading to a high level of corruption. To test this argument, I conduct a case study on China and draw from original data of filed corruption cases to construct measures of corruption. I find that provinces with more MNC activity are strongly associated with more corruption. The results are robust and consistent when possible endogeneity, law enforcement, and alternative measures of corruption are considered. This finding has important implications for domestic governance in developing countries.

Paper     Appendix     Replication Materials     SSRN

2016. “Fortune or Evil? The Effect of Inward Foreign Direct Investment on Corruption.” International Studies Quarterly 60(4): 693–705 (with Pablo Pinto).

Abstract: Economic integration is a double-edged sword. It broadens the set of economic opportunities for countries embracing the global economy, and leads to the diffusion of ideas of good governance. Yet, some forms of integration are associated with the deterioration of local standards and practices. In this paper, we analyze how one of the central drivers of globalization, foreign direct investment (FDI), relates to the prevalence of corruption. We argue that the relationship between inward FDI and grand corruption depends on the level of development of the host country. We test this non-linear relationship between FDI and corruption in an instrumental variable two-stage least squares setting. The results indicate that FDI is indeed associated with higher levels of corruption in less developed countries but not in developed countries.

Paper     Appendix     Replication Materials     SSRN

2015. “The Production of Electoral Intimidation: Economic and Political Incentives.”  Comparative Politics 48(1): 23–41 (with Isabela Mares).

Abstract: This paper presents an account of the conditions under which politicians draw on support from state employees or private actors and engage in the production of electoral intimidation. We characterize the political and economic factors that influence the cost-benefit calculations of these actors and their decisions to engage in systematic harassment of voters. Empirically, our paper examines the political and economic determinants of electoral irregularities in German elections during the period between 1870 and 1912. We find that high levels of electoral competition increase the probability of fraud. By contrast, in districts contested in runoffs, high levels of electoral fragmentation among right wing political parties lowers the incidence of electoral irregularities. We also find a nonlinear relationship between the strength of opposition candidates and the incidence of electoral fraud. The most salient economic variable that affects the decision of private actors to supply electoral intimidation is the occupational heterogeneity of a district. By contrast, other economic conditions in a district, such as the level of rural inequality and the skill profile of the labor force have no systematic effect on the incidence of electoral intimidation.

 Paper (PDF)

Other Publication

2019. “Political Risk and Emerging-Market Multinational Corporations.” The Political Economist: Newsletter for the Political Economy Section of American Political Science Association 15(2): 8–12 (with Weiyi Shi).

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Working Papers

“Yes-Man” Firms: Government Campaigns and Policy Positioning of Businesses in China (with Megumi Naoi & Weiyi Shi)

Abstract: We advance a theory of strategic preference expression in authoritarian systems, where firms express dissent against or conform to liberalization policies based on what they can extract from the government: powerful firms are more likely to dissent to induce policy concessions while politically vulnerable firms are more likely to conform to the government’s position to obtain side-payments or to avoid punishment. We test this argument using survey experiments with firm executives in China. A treatment that signals the government’s commitment to liberalize inward foreign direct investment increases the percentage of firms that report to “benefit” from the policy between 14 and 36 percentage points. Politically powerful firms (state-owned and foreign-owned) conform the least to the government and politically vulnerable firms and the recipients of government contracts conform the most. Contrary to the “Open Economy Politics” approach, political standing with the government, not market standing in the international economy, shapes business position-taking in autocracies.

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Economic Considerations and Attitudes toward Migrant Workers

Abstract: During China’s reform and opening-up era, hundreds of millions of peasants have moved to urban areas looking for jobs, which constitutes the largest movement of labor in human history. This large-scale labor migration has drawn much public and academic attention. Yet there has been little research seeking to understand public opinion on internal migrants. This article examines the role of material factors in urbanites’ opinion formation about internal migration. Leveraging an original public opinion survey with an embedded experiment, this study finds that urbanites in general are not supportive of internal labor migration. When asked a general attitudinal question, urbanites do not make an immediate, strong connection between their economic situations and internal migration. When urbanites are exposed to information about the negative impact of internal migration on local labor markets and public finance, economic considerations become important in their opinion formation. This study is among the first to systemically examine the determinants of public opinion about China’s internal migration. Findings in the article have implications for reform of the household registration system and public goods provision in China.

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Brewing Violence: Foreign Investment and Civil Conflict (with Pablo Pinto)

Abstract: Two prominent features in current world affairs are the unprecedented levels of global economic integration and the growing incidence of intrastate violence. We develop and test a novel argument linking foreign direct investment (FDI) to intrastate armed violence in developing countries. We argue that the entry and presence of multinational corporations causes market concentration in host countries, resulting in high rents. This in turn increases the return to appropriation or create opportunities for rebel groups to enhance their fighting capabilities, thereby increasing the likelihood of conflict. We further posit that state capacity mitigates the positive association between FDI and conflict. Strong states have the capacity to deter rebellions and address citizens’ demands through institutionalized mechanisms. Using a sample of developing countries from 1970 to 2013 and addressing endogeneity bias, we find strong support for our hypotheses. Our findings have important implications for understanding the link between economic interdependence and conflict.

Paper (PDF)

In the Eye of the Beholder: Political Risk, Regime Type, and China’s Multinational Corporations (with Weiyi Shi)

Abstract: Chinese investment has been observed to favor politically risky destinations and authoritarian countries, which is puzzling for the conventional understanding of multinational corporations. One prevailing explanation is that Chinese firms’ embeddedness in risky, authoritarian institutions at home enhances their capabilities to cope with risks abroad. We argue, however, that the risk mitigation strategies firms employ in autocracies are often extra-institutional due to a lack of institutionalized political access and credible commitments; they require the accumulation of country-specific knowledge and political capital, and thus, are not easily transferrable. Therefore, we expect that Chinese investors remain sensitive to political risks in host countries. Empirically we leverage two experiments embedded in original surveys of business executives and find that Chinese firms are deterred by a wide range of political risks and have no preference for autocracy. Our study provides new insights into our understanding of the risk preferences and behavior of Chinese investors.

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Monopoly Rents, Institutions, and Bribery (with Qing Deng)

Abstract: Why do some firms pay more bribes than others? We extend the literature by examining the role of one crucial, but overlooked industry characteristic—fixed asset intensity—in shaping firms’ bribe payments. High fixed asset intensity creates natural entry barriers, thereby leading to market concentration and opportunities for monopoly rent extraction. High rents, in turn, increase the value of government officials’ “control rights” and thus their incentive to engage in predatory behavior. Firms in fixed-asset intensive industries therefore have strong incentives to pay bribes in exchange for de facto property rights. We further posit that strong legal institutions weaken this quid pro quo by providing security for property rights and increasing the risk for government officials’ behaving corruptly. We find empirical support for our arguments based on data from a large firm survey in China. Our findings have important implications for governance and industrial regulations in developing countries.

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Attitudes toward Foreign Direct Investment: Evidence from China

Abstract: What determines individual preferences toward inward foreign direct investment (FDI)? Surprisingly, we know little about the answer. Although there is a growing interest in examining the public’s attitudes toward economic globalization, research on individual FDI preferences are extremely limited. There are at least two main reasons for a lack of such research: (1) the distributional consequences of FDI inflows are rather complex, depending upon a variety of parameters; (2) survey data on public opinion about inward FDI is not largely available. Among the very few studies on individual FDI preferences, scholars tend to treat FDI as a whole and hence overlook the differences between different types of FDI which can be critical to understanding public opinion formation and the politics of FDI. In this study, I distinguish different types of FDI in terms of one key dimension—its skill intensity, and collect original survey data with an embedded experiment to investigate individual attitudes toward two distinct types of FDI—high-skill and low-skill intensive. Empirical results suggest that individuals’ skill endowments are an important predictor of their attitudes toward these two types of FDI. Additionally, I find that non-material factors, economic knowledge and nationalism in particular, play a crucial role in shaping individuals’ preferences as well. These findings have important implications for the political economy of FDI.

Paper (PDF)