TITLE:
FDI Regulatory Reform and Political Beliefs: A Political Economy Approach
AUTHORS:
Louis Jaeck, Sehjeong Kim
KEYWORDS:
Foreign Direct Investment, Lobbying, Common Agency, Beliefs, Political Economy
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.6,
November
11,
2016
ABSTRACT: This paper analyzes the setting of a reform towards liberalization of FDI policies as a
political compromise pressured by the lobbying of a domestic lobby and a foreign
MNC lobby. Using a common agency model of lobbying, we show that, under specific
conditions, the interest group’s influence is not distortive for a critical distribution
of supporters over non-supporters of the reform. Also, our political economy
framework shows that exogenous provision of information on the beneficial effects
of FDI liberalization paradoxically weakens the reform process.