Andrew Kerner

What's the Risk? Bilateral Investment Treaties, Political Risk and Fixed Capital Accumulation

This article argues that the political risk associated with foreign direct investment (FDI) is primarily a function of investment in fixed-capital, and not a homogeneous feature of FDI. As such, empirical tests of a political institutions ability to mitigate political risk should focus directly on investments in fixed capital and not on more highly aggregated measures of multinational corporation (MNC) activity, such as FDI flow and stock data that are affected by the accumulation of liquid assets in foreign affiliates. We apply this to the study of bilateral investment treaties (BITs). We find that BITs with the United States correlate positively with investments in fixed capital and have little, if any, correlation with other measures of MNC activity.

Real Exchange Rate Overvaluation and WTO Dispute Initiation in Developing Countries

Why and when do developing countries file trade disputes at the World Trade Organization (WTO)? Although financial conditions have long been considered an important driver of trade policy, they have been largely absent from the literature on trade disputes. We argue that developing country governments bring more trade dispute to the WTO when overvalued real exchange rates put exporters at a competitive disadvantage. This dynamic is most prevalent in countries where large foreign currency debt burdens discourage nominal currency devaluations that would otherwise serve exporters’ interests. Our findings provide an explanation for differences in dispute participation rates among developing countries, and also suggest a new link between exchange rate regimes and trade policy.

Can Foreign Stock Investors Influence Policymaking

Foreign portfolio stock investors (FPSIs) often attach political criteria to their investment choices, sometimes in the hope of pressuring policymakers in boycotted markets to adjust their policies. This article asks when the decision to not invest in foreign stock markets for political reasons catalyzes policy change in those countries. Unlike investors in government bonds that target state interests directly, FPSIs directly target the interests of the shareholders and managers of publicly listed firms. I argue that FPSI’s policymaking influence is limited by their ability to damage shareholders’ and managers’ interests and by those shareholders’ and managers’ ability to affect policy change. I test my theory with a quantitative analysis of a uniquely well-suited data set of policy reactions to CalPERS’ Permissible Equity Markets Policy. The results largely conform to my theoretical expectations.