Forthcoming. Monopoly Rents and Foreign Direct Investment in Fixed Assets, International Studies Quarterly (with Joseph Wright)
Abstract: In the past two decades, much of foreign direct investment 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.
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.
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.
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.
Economic Considerations and Attitudes toward Migrant Workers
Abstract: Large-scale internal labor migration in China has drawn much academic attention. However, little research has been done to understand public attitudes toward migrants. Leveraging an original public opinion survey, I find that urbanites in general are not supportive of labor migration. When respondents are stimulated to think about the economic consequences of migrant inflows, considerations of migrants’ impact on local labor market and public finance are powerful shapers of urbanites’ attitudes toward labor migration. Although individuals do not make an immediate, strong connection between their economic situations and labor migration, material considerations are crucial in their opinion formulation and can be triggered by a simple priming stimulus. This finding has broad implications for debates in the international immigration literature.
“Yes-Man” Firms: Government Campaigns and Policy Positioning of Businesses in China (with Megumi Naoi & Weiyi Shi)
Abstract: We demonstrate that business policy positions arise endogenously as a result of authoritarian government strategies for inducing cooperation. Using survey experiments with firm executives in China, we show that executives report their policy positions strategically for material gains, and their strategies vary along firms’ bargaining positions with the government. The experiment asks executives differently prefaced questions about how inward foreign direct investment (FDI) will affect their businesses: without a preface versus with a preface that signals the government’s commitment to the policy. The treatment increases the percentage of firms that report to “benefit” from inward FDI by 36 percentage points. Powerful firms that can induce policy concessions (state-owned and foreign-owned) shift positions with the treatment the least, whereas powerless, private firms are more likely to shift their reporting to conform with the government to obtain side payments. These findings imply that autocracies can mitigate the information problem with material incentives.
Brewing Violence: Foreign Investment and Civil Conflict (with Pablo Pinto)
Abstract: We explore the link between inward foreign direct investment (FDI) and intrastate armed conflict in developing countries. We argue that the activity of multinational corporations affects market structure, contributing to rent creation; concerns about the control and distribution of those rents in turn increase rebel groups’ and governments’ incentive to fight. State capacity, on the other hand, alleviates the conflict-promoting effect of inward FDI. Strong states are capable of deterring rebellions, addressing citizens’ demands through institutionalized channels, and credibly committing to a negotiated agreement. Using data from a sample of non-OECD countries from 1970 to 2013 and an instrumental variable strategy to address potential endogeneity bias, we find strong support for our hypotheses. We further examine the underlying mechanism, showing that inward FDI increases the probability of conflict onset through contributing to market concentration. Our findings have important implications for understanding the link between economic interdependence and security.
The Face of Internet Recruitment: Evaluating the Labor Markets of Online Crowdsourcing Platforms in China (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.
Greasing the Wheels of Commerce? Corruption and Foreign Investment (with Weiyi Shi)
Abstract: There are considerable scholarly debates regarding the real consequences of corruption. Recent studies have looked into the organization of corruption, and 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 a firm survey in China, we find that overseas investors always consider corruption detrimental. Only high productivity and fixed-asset intensive investors 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 benefits of predictable corruption are limited.
The Network of Foreign Direct Investment Flows: Theory and Empirical Analysis (with John Schoeneman & Bruce Desmarais)
Abstract: We study the structure of the international network of foreign direct investment (FDI). Existing studies based on regression models overlook the complex dependencies that are likely to characterize the FDI network. Recent developments in methodology for studying international relations show that regression is inadequate for quantitatively modeling dyadic data. We integrate hypotheses regarding exogenous covariate determinants and structural network dependencies into an exponential random graph model (ERGM) for weighted networks. We find that the FDI network exhibits both reciprocity and transitivity. These dependencies have been omitted from previous empirical models, which has consequences for inferences regarding covariate effects. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.
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.
Political Regime, Policy Uncertainty, and Foreign Investment: Experimental Evidence from Chinese Firms (with Weiyi Shi)
Abstract: Do democracies have an inherent advantage in attracting foreign direct investments (FDI)? The political science literature harbors mixed findings. While some believe that democratic systems are better at attracting FDI, others conclude that the impact of political regime is uncertain and depends on the specific institutional features such as the strength of rule of law or the level of policy uncertainty. Embedding a vignette experiment in a survey of 600 Chinese firms, we construct hypothetical scenarios that vary along two dimensions – political regime type and the level of policy uncertainty – and test for their respective effects. Our results cast doubt on the prevailing claim that Chinese investors are drawn to political risks generally. Among our sample of mostly private Chinese firms, respondents perceive countries with uncertain policies negatively and are reluctant to enter these markets, regardless whether the host government is democratically elected. This finding is consistent with prediction by the broader observational literature that regime per se matters less than the policy environment in attracting FDI. In terms of entry mode, however, we find that firms are only willing to claim majority ownership when the host country is democratic and possesses predictable policies.