US Military Aid, Political Risk Insurance, and Foreign Direct Investment

How do national security interests influence outbound foreign direct investment (FDI)? FDI is a major part of the global economy, and a great deal of research has been devoted to understanding the economic and sociopolitical factors that make a country a more (or less) attractive recipient of FDI. However, less attention has been paid to the role of home-country interests, particularly in the realm of national security, in influencing such investment. Seeking to better understand the ways home-country interests and policies influence the locational decisions of their firms, in this study we examine the impact of two policy tools—military aid and state-sponsored political risk insurance—on outflows of US FDI to developing countries.