Chinese and US Overseas Foreign Direct Investment and Democracy in the Developing World

Abstract

This paper integrates the political influence and foreign capital literatures and examines the association between United States and Chinese overseas foreign direct investment (FDI) and host states’ political institutions. Using up to 109 developing countries from 2003 to 2019, and employing two-stage least squares selection modeling, we find negative and significant relationships between Chinese FDI and host states’ democracy while US FDI has positive and significant associations. Our study suggests Chinese FDI and host state leaders may mutually benefit from increasing authoritarianism, producing closer political and economic ties between China and the developing world.