Political Skill and the Democratic Politics of Investment Protection

Transcription

1 1 Political Skill and the Democratic Politics of Investment Protection Erica Owen University of Minnesota November 13, 2009

2 Research Question 2 Low levels of FDI restrictions in developed democracies are paired with increasing public opposition to FDI in the same set of countries Concern about backlash against globalization Skilled and unskilled labor are affected differently by inward FDI Groups in the electorate with more political skills have more influence over investment policy

3 The Argument 3 1. Distributional consequences of FDI produce cleavages Proportion of labor force that is skilled vs. unskilled Endowment of factors determines comparative advantage Unskilled workers at a comparative disadvantage in developed economies 2. Political skills determine which groups are influential Information Collective action

4 Departures from Previous Work 4 1. Labor is partitioned into skilled and unskilled workers 2. Take into account that all voters are not equally informed about how FDI inflows affect them 3. Distinguish between economic and political skills

5 Hypotheses 5 H1: In a comparison of countries, those with a greater proportion of the labor force that has a university education are likely to have lower levels of investment protection than those with a lower proportion. H2: Countries with higher newspaper circulation are likely to have higher levels of investment protection than those with lower newspaper circulation. H3: Countries with higher levels of union membership will be more protectionist than those with lower levels of union membership.

6 6 Measuring Investment Protection Using Gravity Model Estimate a de facto measure of investment protection De facto measure captures other instruments of protection beyond explicit restrictions (e.g. enforcement, industrial policy, public opinion) Gravity model equation: ( ) FDIijt ln GDP it = α it + β 1 ln(gdp it + GDP jt ) + β 2 ln(similar Market Size ijt ) + β 3 ln( GDPPC it GDPPC jt ) + β 4 ln(distance ij ) + β 5 Contiguous + β 6 Language + β 7 EU + β 8 ln(polity differential) + ɛ ijt

7 Independent Variables and Empirical Method 7 Data: 21 developed democracies from Measures of political skill: percent of labor force with higher education, newspaper circulation (per 1,000 people), percent of labor force in a union Other independent variables: unemployment, dummy variables for proportional representation and left party government Control variables: trade openness, government spending as share of GDP, growth of GDP per capita Estimation: Feasible generalized least squares (FGLS) to account for estimation uncertainty in DV

8 FGLS Results 8 Model 1 Model 1 Proportional representation -3.47*** -3.66*** Left government -1.79*** -1.50*** % Labor force with higher education -0.09*** -0.07*** Newspaper circulation 0.01** 0.02*** Unemployment *** Union membership *** Newspaper circulation*unemployment *** Trade openness t *** -0.03*** Government share of GDP t *** -0.18*** Growth GDP per capita t Constant N Adjusted R ***p < 0.01, **p < 0.05, *p < 0.1

9 Conclusions 9 Open black box about the politics of investment protection Support for hypotheses about role of political skills in shaping the level of investment protection Impact of domestic political institutions: PR systems are less protectionist than majoritarian ones with respect to FDI De facto measure of investment protection Future research: examine how different types of investment affect distributional consequences, collect data to test theory of political skill at industry level

10 10 Gravity Model ( ) FDIijt ln GDP it = α it + β 1 ln(gdp it + GDP jt ) + β 2 ln(similar Market Size ijt ) + β 3 ln( GDPPC it GDPPC jt ) + β 4 ln(distance ij ) + β 5 Contiguous + β 6 Language + β 7 EU + β 8 ln(polity differential) + ɛ ijt % Reduction in FDI it = 100 ((ˆα benchmark ˆα it )/ŷ benchmark )

11 Estimation of Gravity Model 11 FE host FE host & FE host & source source & LDV Size 4.81*** 7.18*** 5.73*** GDPpc it GDPpc jt 0.06*** 0.42*** 0.26*** Similarity in size 2.46*** 3.69*** 2.88*** Distance -2.38*** -2.18*** Common language 3.12*** 2.70*** 1.56*** Contiguous -0.65*** BIT *** 0.05 Polity it -Polity jt -4.31*** FDI flows t *** Constant Adjusted R N

12 Levels of Investment Protection in De jure a De facto Level Rank Level Rank Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Switzerland UK US a Investment component of Index of Economic Freedom

13 Robustness of Measure 13 Primary Primary Primary Base+ Tobit No model +FE +LDV LDV+FE zero-flow Primary model 1 Primary+FE Primary+LDV Primary+LDV+FE Tobit No zero-flow US France Demand-side

14 Feasible Generalized Least Squares 14 Know the variance for estimates of the DV: ω 2 Error from the 2nd stage equals ω 2 plus unexplained variation, σ 2 WLS refits regression using (1/ω 2 ) Want to refit the regression based on the total error: 1/(ω 2 + σ 2 )