Abstract
What are the driving factors for foreign direct investment liberalization in formerly communist countries? Previous research explains foreign direct investment liberalization as a function of the intensification of international commerce and democratization; however, the likes of China, Cuba, North Korea, and Vietnam hardly fit into this narrative. The following contribution makes a theoretical argument about the causes of foreign direct investment liberalization in communist authoritarian regimes with highly centralized and closed economies. We argue that foreign direct investment liberalization is caused by external shocks materializing in policy adaptations. The degree of foreign direct investment liberalization depends on the balance of power between actors who favor liberalization and actors who stand to profit from rent-seeking economies. The relative power of both factions determines the magnitude and type of foreign direct investment liberalization. We test this theoretical argument using case studies, which include China and Vietnam as representatives of gradual transitions and Cuba and North Korea as representatives of traditional rent-seeking economies.
Highlights
The recent wave of globalization, which began in the 1980s and continued until the financial crisis of 2007, was largely driven by the economic integration of developingTUM School of Governance, Technical University of Munich, Munich, GermanyPolitical Studies Review 00(0)countries into the global economy, among them many former centralized economies, such as China and Vietnam
We examine case studies based on the historical cases of China, Cuba, North Korea, and Vietnam, as the comparison of the countries within this group tells much about the institutional preconditions and constraints of Foreign direct investment (FDI) liberalization
Based on the assumption of cost–benefit-calculating decision makers, we argue that successful FDI liberalization requires a combination of time and country-specific factors that incentivize the introduction of property rights and, to a different extent, FDI-friendly policy
Summary
The recent wave of globalization, which began in the 1980s and continued until the financial crisis of 2007, was largely driven by the economic integration of developing. We examine case studies based on the historical cases of China, Cuba, North Korea, and Vietnam, as the comparison of the countries within this group tells much about the institutional preconditions and constraints of FDI liberalization. We find that socioeconomic shocks determine the timing of FDI liberalization, whereas the constellation of a domestic coalition dictates the pace and depth of socioeconomic reforms. Both aspects relate to each other, as shocks might necessitate the adaption of liberalization policies but can alter the preferences and constellation within the supporting coalition of the regime
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