Threats to Foreign Equity Investments in International Capital Markets: Nationalism and Militarism

Abstract

Even though financial markets have become more integrated and international capital now moves more freely across borders, we argue that access to foreign equity investments still remains a political decision, and this policy decision is a function of the country's nationalistic and militaristic sentiments. We use military spending as a proxy for militarism and nationalism, and show that countries with high militaristic sentiments have lower foreign equity investments. We also look at bilateral equity flows and find that a pair of countries simultaneously having greater increases in militarism has lower bilateral equity investments.