Not risky business? Nationalism and foreign direct investment

Despite growing research on nationalism and its impact in international relations, little work has been done on how the rise of nationalism in host countries influences foreign direct investment (FDI), a key driver for promoting economic growth. We hypothesize that multinational corporations are less likely to enter host countries with high nationalism, due to the multiple risks that high nationalism entails, such as nationalist boycotts and changes in policy initiatives, and that this dampening effect will be stronger in autocracies than in democracies with a lack of stable institutional structures offering protection for foreign investors. Using a comprehensive dataset on nationalism and FDI inflows across 125 developing countries between 1990 and 2011, we find that countries with high levels of nationalism do not always receive less FDI. Our analysis shows that nationalism is negatively associated with FDI inflows just in autocracies, and that only nationalism measured at the elite level has this a negative impact. These results suggest that rising nationalism may have a disproportionate impact on FDI inflows across the world.