Foreign direct investment, political conflict and co‐operation: The asymmetric response hypothesis

Previous empirical research has demonstrated that political factors do affect the foreign direct investment decisions of multinational enterprises. This study explores the nature of this relationship in more depth. Specifically, it examines the extent to which investors response to political conflict and co‐operation is asymmetric, i.e. investors respond differently depending on whether the political conflict or cooperation is increasing or decreasing. The asymmetric response hypothesis is tested through regression analysis of pooled time‐series (13 years) and cross‐sectional (62 countries) data on Japanese investors. The study finds evidence of asymmetry for intra‐nation conflict and co‐operation but not for inter‐nation conflict and co‐operation.