Digging deeper: Unpacking the subnational political drivers of Chinese extractive investment in Latin America

Abstract

There is a long scholarly tradition that argues that political variables figure prominently in international corporations’ decisions to invest abroad. Most of this literature has focused on the national political determinants of investment allocation. Yet, in some sectors, the bulk of this investment is local. Chief among these sectors are extractive industries where assets are endowed to different local jurisdictions. How do political factors shape extractive foreign direct investment (EFDI) in local jurisdictions? We focus on Latin America, a region of the world that is rich in natural resources, and that has recently attracted a sizable amount of Chinese investment. Drawing on a novel dataset on subnational Chinese EFDI in Argentina, Brazil, and Mexico (2002–2018), and using a logistic model with time series cross-national data we find that multilevel partisan alignment is a strong determinant of Chinese EFDI. In highly decentralized countries, Chinese EFDI is primarily targeted to subnational districts ruled by governors who are politically aligned with presidents. We illustrate the logics of this allocation with two case studies. Our findings make a valuable contribution to three growing fields of study: the subnational determinants of foreign investments, multilevel governance, and the political factors driving Chinese investments in developing countries.