Examination of Foreign Portfolio Investment

This chapter extends the analysis developed in the prior chapters of this book to a new dependent variable: foreign portfolio investment (FPI). This chapter employs theory about the negative impact of political competition and competing economic elites on investor sentiment in nondemocratic settings to predict that political competition and competing economic elites will be negatively associated with FPI inflows to nondemocratic states. Using FPI data taken from the World Bank, along with empirical measures of political competition and the density of economic elites, this chapter provides an empirical test of these claims. The results indicate a strong negative association between both political competition and the number of economic elites on FPI in nondemocratic states and indicate that the effect of both variables is partly conditional on the other. This chapter also explores some case study applications of the theoretical claims to case study vignettes taken from Egypt and China.