Economic nationalism and FDI

Abstract

PurposeThe purpose of this paper is to focus on the relationship between economic nationalism and foreign direct investment (FDI) in emerging markets, seeking to establish whether public opinion and prevailing preferences regarding FDI affect the location decisions of multinational companies.Design/methodology/approachDrawing on public opinion data from 42 non‐Organization of Economic Cooperation and Development countries 1990‐2005, the paper performs a time series cross‐section analysis of the relationship between economic nationalism and FDI. The first main variable measures the extent to which the public holds a positive view of major (domestic) companies. It is hypothesized that in societies where nationalist sentiments dominate, the public prefers indigenous to foreign firms. This induces host authorities to institute more stringent foreign investment rules, which deters FDI. Second, the paper also examines how the public's distribution along the left‐right axis affects FDI patterns. A left‐leaning society should prefer FDI given that foreign capital ultimately benefits labor. Contrarily, a right‐leaning public ought to prefer economic nationalist policies that protect domestic businesses against competition from FDI.FindingsResults support the paper's claims. Controlled for common FDI determinants, both main variables of interest are significantly and consistently related to FDI in the expected directions. Economic nationalism and “rightist” economic preferences in society deter multinationals.Originality/valueThe relationship between economic nationalism, public opinion, and FDI is still an under‐explored theme, which is especially troubling given the possible developmental effects of capital imports. The paper moves beyond available anecdotal examples and brings forth systematic empirical evidence to show that the preferences of society really do affect the locational patterns of FDI.