Recently back from APSA in Chicago, I've been reflecting on the state of our knowledge about FDI (or perhaps more accurately, cross-border management stakes in enterprises). That, and working on my dissertation, applying for academic jobs, and teaching. Oh, and telling everyone who'll listen about my Optimus Prime sighting on Michigan Ave.



Anyway, I find a post-conference review of the discipline is generally a good way to consider potentially fruitful lines of new inquiry. In my experience, the quality of papers at conferences can be rather hit-or-miss. This generally fits into my view of conferences as important sources of external deadlines for getting drafts done as well as interacting with other scholars in more informal settings such as the hotel bar/lobby/over-crowded coffee shop. And, I think that's enough to ask out of a conference.



However, there are generally one or two papers every conference that catch my eye in meaningful ways. They are often more conceptual pieces that challenge traditional approaches to measurement or quantitative analysis. Andrew Kerner's "What we talk about when we talk about foreign direct investment" was the stand out paper for me this year. According to his website the paper is under review and I'm not sure if he's widely circulating a draft at this time. Hopefully this piece will be published somewhere good soon because its well worth the read. The gist is that measures of FDI derived from balance of payment measures are grossly inadequate measures of the kinds of economic activity political scientists are generally interested in when we study the phenomenon frequently referred to as FDI. Not only do countries often have different definitions of FDI, but FDI flows bounce around for all sorts of reasons that are far removed from decision over making fixed, long-term investments in capital stock. Even worse, FDI flow data are reported in net terms, which makes it impossible to differentiate between a country that experienced a lot of inward direct investment concurrent with an equal amount of outward investment and a country that experienced no direct investment flows at all.



The recent news about Verizon's buy-out of Vodafone nicely illustrates some of the problems with current measures of FDI. Vodafone is a British company, so Verizon's decision to buy out Vodafone's share will register as a massive repatriation to the UK. The size of the deal is so large ($130B!) that it's going to influence measures of global FDI flows for 2013. For context, UNCTAD reports global FDI inflows last year were $1.35 trillion. That means this one mega deal is worth 10% of all total FDI net inflows last year! I doubt any political scientists would argue the Verizon-Vodafone deal reflects any underlying change in assessment of political risk in the US. But, that one deal will dominate 2013 measures of global FDI.



Kerner's entreaty is to use data sources that differentiate between flows of cash and real fixed capital investments. One limitation of such as strategy is that it limits us to modeling the investment decisions of either US or Japanese firms (since the US and Japan are really the only countries that make available such detailed data about the investment decisions of their foreign affiliates), and the investment behavior of firms from these countries might differ in important ways from firms headquartered in other countries.



Given the tendencies of those writing on this blog, as well as our co-authored academic work elsewhere, it may not be surprising that I'm partial to another tactic. It seems that all this semi-liquid investment caught up in measures of FDI might not be so easily captured through an obsolescing bargaining mechanisms (though, as Rachel Wellhausen pointed out in discussion, even cash can be effectively illiquid if there are restrictions on repatriation), but the flow of these investments across borders does influence banking systems, the growth of the money supply, the availability of credit both globally and domestically, and therefore the propensity for crisis. Perhaps one way forward here is to consider more explicitly the relationship between different kinds of financial flows and how their interaction affects both political and economic outcomes.



