To Stay or to Go? Sources of Domestic Support for Foreign Direct Investment in Kenya

Abstract

When do citizens support foreign direct investment (FDI) in developing countries? FDI flows are the single largest source of global capital flows and are considered a conduit for economic growth. However, many studies find a negative impact of FDI inflows, such as an increase in inequality, corruption, or environmental degradation. While most existing studies predominantly focus on the supply side of FDI policies, study on the public demand for FDI is still in infancy. Using a series of original survey experiments in Kenya, this paper considers when host country citizens prefer foreign versus domestic investments and what characteristics make foreign direct investment more desirable to host country citizens. We also investigate when and from whom governments can claim credit for increased foreign investments. We find that host country citizens generally prefer foreign over domestic firms, and the concern for corruption seems minimal. While economic factors such as job creation matter the most in determining public support for FDI, we also show that citizens emphasize social responsibility or minimal policy concessions. Finally, we find that politicians can credit claim even when they are clearly not attributable to the increased FDI inflows, but such an effect is only detectable for coethnic voters.