Global Corporations and Local Politics: A Theory of Voter Backlash

36 Pages Posted: 28 Apr 2001 Last revised: 21 Oct 2010

See all articles by Eckhard Janeba

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 2001

Abstract

Host governments often display two types of behavior toward outside investors. At an initial stage they eagerly compete for production facilities by offering subsidy packages, but often reverse these policies at a later point. In contrast to the literature that explains the behavior as a result of a hold-up problem, this paper argues that policy reversals are the result of a change in the policy choice or identity of the policy maker. Voters disagree over the net benefits of attracting corporations because of a redistributional conflict. Economic shocks change who is policy maker over time by affecting (i) the number of people who support the corporation, (ii) the incentive of an opponent of the firm to become a candidate, and (iii) the opponent's probability of winning the election against a proponent. The paper shows also that societies with more skewed income distributions are less likely to attract outside investment. While the interpretation of the model is cast in the context of foreign investment, the model has more applications and can be seen as a general theory of voter backlash.

Suggested Citation

Janeba, Eckhard, Global Corporations and Local Politics: A Theory of Voter Backlash (April 2001). NBER Working Paper No. w8254. Available at SSRN: https://ssrn.com/abstract=268376

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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