Does the party in power affect FDI? First causal evidence from narrow margin US state elections

Abstract

Does the party of government influence the amount and type of inward foreign investment? Correlational studies provide inconsistent evidence. Moreover no existing study, for any level of government or any jurisdiction, uses methods that allow for causal inference. We apply regression discontinuity methods to a set of narrow margin US gubernatorial elections. Over the course of a 4-year term the election of a Republican governor causes a 17% boost in the growth of manufacturing-oriented FDI stock, compared to a Democrat. However, the same approach provides no evidence that partisanship matters for the overall level of FDI.