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Leaders’ Foreign Travel and Foreign Investment Inflows

Kodila-Tedika, Oasis and Khalifa, Sherif (2020): Leaders’ Foreign Travel and Foreign Investment Inflows.

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Abstract

This paper examines the effect of foreign travel by the leader or the head of state on the ability of the country to attract foreign capital, as reflected by foreign direct investment inflows. The key difficulty in determining a causal effect is the issue of endogeneity. As much as the leader’s trips abroad may attract foreign capital inflows, it is also possible that leaders are tempted to visit countries known to have a high level of investment out of their borders. To deal with potential endogeneity, we use instrumental variable panel estimation techniques. The Arellano and Bond (1991) GMM estimation shows that the leader’s trips variable has a statistically significant positive coefficient. This is the case even after the inclusion of other control variables and after using alternative samples. This result implies that these trips by the leaders allow them the opportunity to attract foreign capital.

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