| In this dissertation I argue that the fiscal competition among governments to attract multinational investors has been grossly exaggerated, and that fixation on the “race to the bottom” has diverted attention from what are, in fact, the major political determinants of FDI flows. Foreign direct investment, by definition, entails a substantial and lasting ownership stake in a host country. Perceptions about future conditions in the host inform investment decisions today. I argue that three political factors have a marked impact on these decisions: whether a country is democratic, whether it has a politically federal system and whether it owes the IMF money.; In a number of cross-national empirical tests I show that: (1) levels of government taxation and spending do not have large effects on FDI inflows in 15 OECD countries, (2) Democratic institutions are associated with higher levels of FDI inflows, (3) Politically federal institutions can increase FDI inflows while fiscal federalism has no effect, and (4) IMF agreements are associated with lower levels of FDI inflows for recipient countries. |
