Merging Interests
When Domestic Firms Shape FDI Policy

Demonstrates how large domestic firms push to liberalize foreign direct investment policies to ameliorate financing constraints, often to the detriment of others.

Sarah Bauerle Danzman (Author)

9781108494144, Cambridge University Press

Hardback, published 19 December 2019

348 pages
23.5 x 15.5 x 2 cm, 0.45 kg

'Sarah Bauerle Danzman deftly navigates the complexities of corporate finance to explain why large domestic firms, typically wary of FDI, welcome these investments when they lose preferential access to capital. In contrast to labor-centric accounts of FDI liberalization, she anchors the political economy of FDI policy to broader macroeconomic conditions that make firms support greater FDI openness. Her account offers valuable new insights on the politics of FDI regulation, and on how firms adapt to global economic integration.' Sonal S. Pandya, University of Virginia

Why do governments open their economies to multinational enterprises (MNEs)? Some argue democratic forces promote this openness, but many citizen groups view multinational business with suspicion. Using quantitative and qualitative analysis, Bauerle Danzman demonstrates how large domestic firms push to liberalize foreign direct investment (FDI) policies to ameliorate financing constraints, often to the detriment of smaller competitors. MNE entry comes with substantial risks, such as higher labour costs and increased productivity pressures, so well-connected domestic firms will prefer to limit access to local markets when the costs of debt financing are relatively low. However, when local environments make debt financing increasingly expensive, firms will be more willing to dismantle restrictive investment policies so that they may overcome liquidity constraints with equity financing from abroad. Bauerle Danzman includes comparative analysis of Malaysia and Indonesia from 1965–2016 to illustrate how governments undertake investment policy reform, and to indicate the interest groups that influence the outcomes of these regulatory changes.

1. Introduction
2. Describing FDI policy through time and space
3. Financing constraints and liberalized entry
4. Quantitative tests: financing constraints and liberalization
5. Quantitative tests: firm and industry level evidence
6. Comparing Malaysia and Indonesia, 1965–1997
7. Crisis, reform and policy divergence: Malaysia and Indonesia, 1997–2013
8. Implications of elite-driven integration.

Subject Areas: International business [KJK], Political economy [KCP], International economics [KCL], Politics & government [JP]