Abstract
Many argue that government partisanship influences the size of investment flows into stocks and bonds. But existing literature tells us little about how international capital flows influence election outcomes. I argue that passive investment into stocks, bonds, and other debt instruments—in other words, portfolio investments—increases political contributions to right-wing parties. This investment generates resources for domestic capitalists. These owners of capital then channel these resources into political contributions to right-wing parties and enhance those parties' electoral position. Thus, passive investment bolsters the electoral chances of right-wing governments. I illustrate this process with a formal model of special interest politics in which lobbies operate under budget constraint. Using a new data set on political contributions and statistical analyses for a sample of states from 1980–2009, I find support for my general argument.
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