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Be my guest: the effect of foreign policy visits to the USA on FDI

Author

Listed:
  • Adam, Antonis
  • Tsarsitalidou, Sofia
Abstract
We examine whether a country leader’s diplomatic visit to the USA affects the Foreign Direct Investment inflow. The literature so far has found inconclusive results regarding diplomatic relations' effect on international flows. We use a dynamic Inverse Probability Weighting Regression Adjustment framework to examine this relationship and estimate the causal effect of foreign visits. Our results indicate that a visit to the US increases the country’s total FDI inflows by up to one percentage point per annum, with a cumulative effect reaching 2.5 percentage points six years after the visit. However, this is a short-run effect as it disappears in the subsequent years. Furthermore, our first-stage results shed light on the profile of the leaders that visit the US. Our findings are consistent with the view that foreign visits act as signals to investors regarding the country’s political risk.

Suggested Citation

  • Adam, Antonis & Tsarsitalidou, Sofia, 2024. "Be my guest: the effect of foreign policy visits to the USA on FDI," LSE Research Online Documents on Economics 119368, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119368
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    File URL: http://eprints.lse.ac.uk/119368/
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    More about this item

    Keywords

    FDI; foreign visits; inverse probability weighting;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H80 - Public Economics - - Miscellaneous Issues - - - General

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