Interest Groups, Information Provision and FDI Policy Liberalization

DOI: 10.5176/2251-2012_QQE16.23

Authors: Louis Jaeck and Sehjeong Kim

Abstract:

This paper analyzes the setting of a reform towards liberalization of foreign direct investment policies as a political compromise pressured by the influence of a domestic lobby and a foreign multinational corporation lobby. Using a common agency model of lobbying, we show that, under specific conditions, the interest group’s influence is socially distortive. Our political economy framework also shows that exogenous provision of information on the beneficial effects of FDI liberalization policies strengthens the reform process. However this result depends on the distribution of interest groups ‘relative political efficiency. JEL codes: D72, J08, D83

Keywords: Foreign direct investment, lobbying, common agency, beliefs