Abstract Countries with populist governments are less attractive investment destinations for Multinational Corporations (MNCs), as foreign firms tend to be delegitimized and targeted as members of the outgroup. However, populist governments vary in the extent to which they delegitimize foreign firms as outsiders. Departing from the traditional right–left classification that masks key differences among political regimes, this paper investigates aspects central to populism and to how populist governments see foreign firms: business orientation and stance on immigration. Pro-business regimes perceive a greater role for private sector firms and are less likely to treat MNCs as members of the outgroup. However, regimes with a strong anti-immigration stance highlight threats to local identity and are more likely to treat MNCs as members of the outgroup. Using a dataset of over 23,000 foreign direct investments (FDI) across 61 host countries from 2008 to 2017, we find that the adverse effect of populism on FDI is diminished in pro-business regimes whereas it is amplified in regimes with strong anti-immigration stances. Furthermore, regime alignment between home and host countries reduces the negative impact of populist governments on FDI. Our research highlights the crucial role of regime characteristics in shaping FDI across populist governments.
Jandhyala et al. (Fri,) studied this question.